Building a custom home shouldn’t be a far-fetched idea. It’s an idea that you can make a reality. Even if you don’t have adequate money to build your home from your savings, you can get a construction loan to fund your project. A construction loan is short-term. That means you should use it to build your house specifically. If thinking of getting a construction loan, here are things you should know.
Building a House with a Construction Loan is a Process with Regulations and Specifics
A construction loan differs from the other loans you may have come across. You must follow a specific path for the lender to approve and process your construction loan. For instance, you must pick a qualified builder and meet the requirements set by the lender. What’s more, an appraiser will inspect your project continuously to ensure that you are spending the dispersed amount on the project.
You Need Money and Time to Secure a Construction Loan
The specifics of this loan make it consume more money and time to secure. Ideally, you have to fill out some papers, schedule appraisals, and get approvals. Some lenders take a lot of time to approve construction loans. What’s more, this loan has heftier down payments, ranging between 20 and 25 percent. This loan is interest-based. That means the lender expects you to pay interest on the borrowed money rather than paying the principal balance for the loan.
Construction Loan Repayment
Before you apply for a construction loan, understand its repayment process. Most construction loans last a year. However, you can get another loan at the culmination of your construction period to repay your initial one. In most cases, this financing is called the end loan. That means you can refinance the construction loan after its period and start paying a new one. The new loan is like a conventional loan with a longer duration.
In addition to these things, talk to the lender and your financial advisor. That way, you will know the most appropriate construction loan for you depending on your income and needs.