If you are considering purchasing property or land, you may have done some research, but you still may not be familiar with construction loans. Since most people that purchase homes, are financing their purchase with a conventional loan, they don’t feel the need to look into information regarding construction loans. This type of loans is a good option for someone looking to build a home if they have looked at homes in an area and just can’t find the home they want to purchase that is already built.
A construction loan is used when you want to build a home from the ground up; but there are two types of construction loans to consider. The first type of construction loan is called a construction-to-permanent loan. It is used to pay for construction, and then once the home is built, it becomes a mortgage. The second type of construction loan is a stand-alone construction loan. There is one loan for the construction of the home and then once the home is built, you get a mortgage to pay off the construction loan.
The Finer Details
Once the home is built, the construction loan will become a permanent mortgage just like a mortgage on any other home that was purchased outright. This type of loan can be a fixed or adjustable rate at 15 or 30 years.
While the home is being built, you are only responsible for paying the interest on the balance of the construction loan. This type of loan has a variable interest rate and that means it can change throughout the construction of the home.
A stand-alone construction loan can be a good idea if you can’t make a large down payment. For example, if you are selling your current home, but want to build another, you might have a surplus of cash once you sell your home so you can use that to pay the construction loan once the home is built.
One thing you should consider if you choose a stand-alone construction loan is that there will be two closing costs for each loan. You also are not able to set the rate on this type of loan so you could end up paying more than you expected in interest.
How To Qualify
Construction loans have a bit more of a process when it comes to qualifying because there is no collateral involved. You will also need to be accountable for extra costs that come up along the way as the home is being built. Because there is no way to know the exact expected cost, you want to be sure you have some funds saved up to cover those expenses that pop up along the way.
Once you have gone through the process of securing the loan, you will need to select a builder. This is going to be the decision that you spend the most time researching since they are going to be responsible for incorporating all the things you want into the planning and building of your home. Looking at previous homes they’ve built and reviewing their credentials is a good place to start your research.
Contact Us Today!
Choosing to construct a home is a major decision and there’s plenty of details that you’ll want to learn before moving forward. We want to make sure you have all the tools necessary to make the right choices. Please reach out to AmeriSouth Mortgage Company in Charlotte, NC today!