In the second part of our series on home loans, we’re going to take a look at construction loans.
You’re going to find that there are many avenues in which these loans are available to people just like you. However, as is the case with any other type of loan, you’re going to want to be aware of the particulars.
For example, before any credible lender will grant you a construction loan, you’re going to want to satisfy a few issues beforehand. Step 1 is that you’re definitely going to want to make sure you have a builder committed to your project.
What is a construction loan?
As the name might suggest to you, a construction loan is designed exclusively for those who are planning to build a house. A construction loan breaks down into fairly simple terms.
Once you have purchased land, you’re going to do your research to find a contractor or construction company. After choosing your contractor/construction company, everyone will work to not only create a clear idea of what is going to be built, but how long it is going to take to complete the project.
Armed with blueprints and a time frame, your next step will be to contact a lender for the construction loan.
In some circumstances, a lender will be willing to extend the construction loan to assist in the purchase of the land in question. However, you will still want to bring a contractor, blueprints, and a time frame to any consultation you may have. The lender will want to have complete confidence in what you are proposing to do.
Keep in mind that this loan is strictly temporary. They work when variable loans are drawn down to make sure your contractor is paid in stages. In other words, you are allocating small sums of money that will continue to pop up, over the course of the life of the construction project. One of the nice elements to this loan type is the fact that the contractor is not going to be paid for work they haven’t done. This is a smart way to protect the borrower from assuming any financial losses through the construction timeframe.
In terms of repaying the loan, you’ll want to note that this loan is interest-only, payable on the loan amounts that have been drawn upon.
On completion of the construction project, the loan will switch over to a permanent principal and interest sort of mortgage. These are just the basics and we always advise you to seek the expertise of a YFG Lending Specialist consultant.
