When Should I Get A Construction Loan?

Perhaps you’ve had a dream home in mind for many years and the perfect plot of land to build it on has just come up for sale. As mortgage financing loan brokers we often get the question, “What do I do when I want to build my home from the ground up?” To that question, we answer: a construction home loan.

Construction home loans have a lot of similarities to conventional loans but are designed and structured to accommodate the complexities of having the building project included in them as well.

If you’ve ever wanted to build a home from the ground up, but weren’t sure how to begin, read on to learn more about how a construction home loan can truly get you into the house of your dreams.

What is a Construction Home Loan?

Construction loans can be broken down into two types: construction-to-permanent and construction-only loans.

Construction-to-permanent loan

This type of loan allows you to borrow money for the construction of your building and then once the work is finally complete, it converts to a permanent mortgage. You also only make payments on the interest-only portion of the loan during construction.

While various lenders may have slightly different requirements you need to meet, these types of loans are generally issued for single-family, one unit detached homes.  

Lenders will also likely require inspections throughout the building process. These are determined beforehand with the home building contractor and are issues when the loan has closed.

One of the best benefits of this type of loan is it allows you to pay only one set of closing costs, which is no small amount when it comes to saving you money over the course of your loan.

Construction-only loan

With a construction-only loan, you don’t need as large of a down payment. This would be advantageous in situations in which you are waiting for your current house to sell. Once your current home sells, and you can move into the home of your dreams, you’ll have more cash to pay the mortgage on your new home.

However, construction-only loans can come with big risks. You have to close on two separate loans. That means if your finances somehow take a turn for the worse (i.e. losing your job) you may be stuck unable to qualify for a mortgage when it comes time to move in. Plus you have to pay two closing costs.

Is it Difficult to Get a Home Construction Loan?

With home construction loans the lender doesn’t have a house to act as collateral if you default on your payments. This means you’ll need to have better credit, a low debt-to-income ratio, and a sizable down payment.

Finance the Home of Your Dreams with Patriot Home Mortgage

One of the reasons those of us at Patriot Home Mortgage are so excited about construction home loans is that they allow homeowners to finance the home of their dreams. Your home is one of — if not the — most significant investments you’ll ever make in your lifetime. Being able to take it from design to completion is truly an exciting thing.

Or perhaps you’ve always dreamed of building your home from scratch but you never thought it possible. Wherever you are in the process, our mortgage consultants will work with you to find the perfect loan options at interest rates that make sense.

To start the application process, call us at (833) 428-0182. You can also start now by filling out our application form today.  

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