Construction Loans: Construct Your Home With A Constructive Loan!! By Marsha Claire At Isnare.com Ezine Articles

The construction of your dream house has finally begun – something you once never thought possible! Everything looks positive, the foundation has been laid and your home is on it’s way to the top … when you realise that you are falling short of resources due to unprecedented costs – something that you didn’t imagine, something going way over the budget? Don’t stop and reconsider your plan because any sudden construction impediment is going to cost you more than what’s needed for completion. Obviously, applying for a loan at this stage will disrupt construction because of the time taken for the entire procedure. No, you’ve not yet reached that dead end, since Construction Loans are here to help!

Construction Loans are short term loans that help fund the construction of your house. They can be considered before construction and also when you’re half way through. The quick approval of these loans is what makes them exploitable. Construction Loans can aid essential amenities like, laying the foundation, cementing, purchase of bricks, panels and further furnishing costs like plumbing, electricity, etc. Both, homeowners and builders can use construction loans, although many lenders get doubtful about lending money to first time homebuilders. There are also Commercial Construction Loans that can finance the construction or renovation business premises and commercial buildings.

Loan term/ Repayment term:

Unlike mortgages, Construction Loans are short term loans that usually extend only up to the completion of the entire structure and it’s occupancy. During this loan term, you are expected to repay the loan in interest-only instalments. The outstanding amount is due in a single lumpsum instalment, only after completion of construction. There are two types of Construction Loans – an All In One Construction Loan and a Construction Only Loan. The first loan automatically changes into a mortgage on completion, while the latter can either be paid up in a lumpsum instalment or can be converted into a mortgage. The repayment procedure then continues accordingly.

Interest rate:

Being short term loans that are needed to prevent derailment of construction, the interest rates on Construction Loans are rather high. The rate of interest varies depending upon the stage at which construction stands and the amount required to fund completion. The interest offered on such loans are usually variable, therefore, it is necessary to “lock” you interest rate (rate-lock) so as avoid an increase in the loan cost when market interest rises.

Funding:

A common misconception is that the amount is made out to the borrower in a single cash payment; instead, a loan contract is prepared between the lending party, the borrower and a contractor, if any. The lending party directly finances the builder, supplier and workers as construction proceeds. For this a construction draw is prepared by the builder, clearly outlining costs involved. These draws are then submitted to the lender at various stages of construction.

For any Construction Loan, you are assisted with a unique instant approval which grants small amounts in various stages. For approval, however, to nullify any risk involved, lenders thoroughly scrutinize your assets and employment details. However, a ‘Stated Income Construction Loan’ is a loan that does not require any verification of your income. This could be because you are unable to provide proof of regular income, as in the case of self employed individuals. These loans may involve further elevated interest rates and a larger down payment.

With any task at hand, it is necessary to study your requirement, affordability and benefits in detail. Comparing these with what a lender gives you is an ideal method to check whether you need to take the loan or not. Weigh your options and only then decide. You may just provide your new home with the foundation it desperately needed!

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