Finding your dream home can be quite the hassle depending on where you’re located. If you happen to be interested in finding a home with more land than a traditional home, you might have some trouble going on your search the traditional way and even further more, financing can be troublesome as well. If this sounds like your situation, a construction loan might be a good option for you. Construction loans are 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 on the market.
1. There is more than one type of construction loan
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 completed, you get a mortgage to pay off the construction loan.
2. There’s multiple steps to getting qualified for a construction loan
First the home needs to be constructed, and then 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.
3. What is a stand alone construction loan?
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 think about if you choose a stand-alone construction loan is that there will be 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.
4. How do I qualify for a construction loan?
When it comes to the qualification process, construction loans are a bit more complicated since 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.
5. Selecting a builder
Once you have gone through the process of securing the loan, you will need to select a builder. Researching and interviewing builders is going to be a critical part of the success of your home so don’t be afraid to take your time and don’t settle until you find just the person to take care of the job in every way possible. You’re going to be working with the builder to create the home of your dreams so you want that partnership to be one that is successful.
Get Started Today!
If you are thinking about the construction loan route, we would be more than happy to assist you with the process. We want to make sure you have all the tools necessary to make the right choices. Please reach out to the team at North Star Mortgage today!