If you are planning to construct your dream home instead of buying the already build premises, it might come as a surprise to you that you won’t get a conventional mortgage for it. But no need to worry now! A construction loan is there to your rescue. No doubt, construction loan can turn out to be an effective solution for your financial problems. Though they are higher-interest and short term loans, a majority of the people prefer applying for construction loans as they cover the entire construction cost. Look out for reliable VA construction loans.
Note that home loans and construction loans aren’t the same. In fact, home loans are determined by the current market value of the home and its condition while the latter is calculated on the basis of the estimated value of the building once the construction work is done. The three most common types of construction loans the borrower gets to choose from are:
- Construction-to-permanent loans
- Construction-only loans
- Renovation construction loans
The Working of the Construction Loans
Unlike conventional loans that are often paid in the lump-sum amount at closing, construction loans are paid by the lenders in installments. This means the financial institution will pay you after the completion of a particular construction phase. The total amount is transferred to your account as soon as the entire construction work is accomplished. The installment amount transferred to your bank account in every phase is called “draws”. Draws are basically made to finance your particular construction part. However, the bank won’t process these draw until they investigate your construction requirement.
As construction loan is variable in nature, it is recommended to conduct proper research to get to deal with a renowned financial institution or bank.
Benefits of Construction Loans
Home loans and other traditional mortgages can be a good option for buying a ready-made home. However, when it comes to constructing your premises, you should rather opt for construction loans over other typical financial options. Here is how the construction loan can benefit you in the long run:
Construction Loans are Interest-only Loans During the Construction Process
As mortgage companies do not pay you the entire loan amount before the construction finishes, they don’t have any right to ask you to pay the principal amount till then. All that you have got to do is arrange the interest-only payment, which you have to pay during the construction period and that’s it! The lower you pay during the construction phase, the more time you get to save funds.
Construction Loans are Associated With Pretty Flexible Terms
Unlike traditional loans, you can expect to get plenty of flexibility in terms of your loan guidelines, interest payment, and other loan terms. Furthermore, it also offers scrutiny, which helps you ensure that your construction project doesn’t exceed the deadline and your budget.
This is all about construction loans. So have you decided to build your own premises and already in search of flexible and cheaper loans? Find a reputable lending institution and get your construction loan application approved. Get the most of professional VA construction loans. Good Luck!