Kinds of Construction Loans

When you buy or plan a house, you have to make a down payment and borrow the rest of the purchase price with a mortgage. If you are looking for a house, these homes will offer you construction financing.

Three basic options:

There are three kinds or three common ways to finance the construction of a custom home.

1. Builder financing- This is the case that builders will finance the construction for client using the firms’ money. It is like a product endorsement, like you see on an ad. The builder will deposit and cover all costs until the house is complete. It sounds simple and the arrangement is attractive, but the money is not. The builder will then have to pay the interest of this borrowed money until you paid those costs when you are finished settling up. 

2. Separate loans- This is the most traditional construction financing, taking out two loans, a construction loan, followed by a permanent mortgage. These loans can be obtained from one lender or two different lenders. Basically, construction loans have a six to one year term of payment and you have to pay a monthly interest charge. 

3. Combination loans- This is very similar to the two-loan approach. Combination or combo loans can save clients money. The advantage is, closing is only once when you need it. When you receive your certificate of occupancy this construction loan is converted to mortgage. Aside from security, you avoid double closing costs.

Sources of your funding 

Your first choice should be a familiar one, an institution where you do a lot of banking transactions because they know what you can afford, and may offer deals especially for you. Local saving and loan institutions because they are experts for local housing. Provide your lender detailed plans, specifications and deed of your land. If you are buying a land, supply your relevant documents and submit your deed as soon as possible.

Checklist 

There are types of architectural drawings prepared for constructions of different buildings:

1. Preliminary sketches
2. Presentation drawing
3. Specifications
4. Plot plan
5. Landscape plan
6. Floor plan
7. Foundation and basement plan
8. Exterior elevations
9. Interior elevations
10. Electrical plan
11. Plumbing plan
12. Floor framing plan
13. Roof framing plan
14. Heating and air-conditioning plan
15. Wall details
16. Stair details
17. Cabinet details
18. Window schedule
19. Door schedule

Most of the lenders want an estimate specification, which will do the work and what price. Remember that when closing a loan, you have to provide copies for each (builders and any subcontractors) of signed contracts. These are simple construction loans, but you can build your house in no time.