Typically speaking, there are around three kinds of home construction loans that are commonly used within custom home building. These construction loans are a bit different than a standard mortgage since they help pay for materials, the lot and are built specifically for the time of construction. If you are looking to build a new custom home, then you’re likely looking into the possibility of getting one or all three of the following construction loans. Read on to learn about the three main types of custom home construction loans!
A lot loan is a whole different than a construction loan since it only pays for the land that the construction will take place on. It is also typically a short-term loan, with the assumption that a house will be built on the property in the near future. A few lenders will transfer a lot loan into a construction loan. The terms of your lot loan will vary by the lender, with a couple offering interest-only loans or interest and principal. Keep this in mind while looking for your custom home loan.
Construction Perm Loans
This kind of loan is the more preferred or common method for a lot of homeowners. In this scenario, you borrow money to help pay for the lot and the construction, and there is only one loan closing. One loan closing gives benefits since it often reduces the fees associated with two different loans. In addition, you’re typically able to lock in the long-term rate for the permanent loan. During the custom home construction process, you pay interest only with the outstanding balance. Usually, the rate is variable during the construction process and will go up or down based on the prime rate. For more information about this kind of loan, ask your custom home builder from Robin Ford Builders.
Stand-Alone Construction Loan
This kind of loan establishes a loan for the lot and the construction costs. When you’re ready to move in, you’ll receive another loan to help pay off any remaining construction debts and to provide a permanent mortgage for your new house. This kind of loan might be smart for those with existing homes, perhaps with equity, who might want to use their credit card as a down payment. However, this kind of loan usually requires two closings, which means two different sets of fees.
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