Posts tagged: construction loans

Is There Such a Thing as an Overnight Construction Loan?

Construction loans are set up for those wanting to build a new custom home, while still living in their current home. They are short term , usually lasting around one year, and then they are converted into regular mortgage loans when the house is complete.

When thinking about construction loans, it is important to understand the meaning of shopping around. You can save a bundle of money by using a great construction loan officer and shopping around for the best interest rate.

You will want to apply for construction loans with multiple lenders. This will give you an array of choices and you should be able to weed out those companies that are strictly looking for your money in their pocket.

Another important part of securing a good construction loan is knowing how to read the small print. Some lenders may try to get you to lock into a high interest rate when you begin to build your home, even though the rates will probably fall dramatically by the time you move in.

Be aware that a difference in interest rates can have a huge impact in the amount of interest you will pay over the next 30 years. Even a tenth of a percent will have a notable change in the long run.

Your loan officer should explain the small print and help you get the best loan package together. The principal amount of the loan, any savings your decide to use as a down payment, and the current equity in your home will all go towards the loan package total.

It is advised that your loan package total exceed the bid of your new home by 5%. This will allow for any extra building costs that you and your contractor did not expect. You can also get that money back if you don’t use it to build the house.

As your new custom house is being built, the lender is handing out checks to your sub contractor so that they may pay those working on your new house, as stated on the affidavit.

You will be required to make interest payments as your sub draws money from the account. You will continue to make these interest payments until the house is completed and you move in. When you close, your loan will be converted to a regular mortgage loan, where you will make both principal and interest payments.

If you did your job of bargaining well before you began building your home, you should end up with a great competitive interest rate for the complete life of your mortgage loan. There are a few financial risks that come with building a new home, and there is one that is major above others.

If you have an existing home, you will be sitting on two homes while one is being built and the other is being sold. One idea is to sell your existing home before you begin the building process. This way you know exactly how much your existing home will bring in before you get in deep on a new home.