Tips & Advice On Residential Construction Loans
A lot of people dream about building a new home. Everyone wants
a home that will work with their lifestyle and reflect their
character and be original and attractive to the eye. Getting a
construction home loan can be a scary task. Residential
construction loans are different from traditional home mortgages
in many ways.
There are several types of residential construction loans to
choose from. If you choose the owner builder loan, this means
you are acting as the general contractor and you are solely
responsible for the construction getting completed on time and
within budget. A custom contractor loan has the contractor being
responsible for making sure that the construction gets done. A
remodel or addition loan is for when you love your home and your
neighborhood and don't want to move but need more space. This
loan takes into account how much the house will be worth after
the addition or remodel. There is also a tract or subdivision
loan, which is the kind of loan you will need if you decide to
build a house in a subdivision, choosing from the builder's
standard house plans and adding any upgrades you want.
When you think about building a home, you have to figure out how
much it is going to cost you. You take the cost of the building
site, (keeping in mind that this includes both the asking price
of the site and the costs to develop it), your home design, the
construction costs (this must include quotes for all the
subcontractors who will be working on your house, for example,
masonry, electrical, landscaping, etc.) and the costs of
financing, which will give you the total cost of building a new
home.
It is always a good idea to pre-qualify for a construction loan.
The process to pre-qualify takes into consideration your credit
record, any down payment you can make, the type of loan you
want, and the current market value of homes. If you pre-qualify,
you will know up front the amount of home you can afford to
finance and build.
Not all residential construction loans are alike. Many are based
on a six-month or one year plan, which means they will be
completed within that time frame. Some allow you to lock in your
interest rate at the lowest rate, and others are variable
interest rate loans, which means the interest rate changes with
the market. Other loans are bridge loans, which allow you to use
equity from your current home until your new one is finished.
Many require interest only payments until the house is
completed; at which point those payments are due. The best
choice is to get a construction loan that can be converted into
a mortgage loan so that you only have to fill out one
application and have the costs associated with one closing
instead of two.
Building a new home does not have to be scary if you do your
homework, plan well, and realize that not everything will go
according to the plan.