Construction Mortgage Loans
Are you thinking about building your own home? If so, you aren't alone. In fact, a growing number of people are deciding to build their dream homes rather than buy one that has already been built. If you are one of these people, you might want to look into getting a construction mortgage loan.
With one of these special types of loans, you receive the money in predetermined intervals. That way, you can make payments as the home is being built. In order to get one of these loans, however, you will need to show the blueprints to the lender. This way, the lender can make certain the amount of the loan is appropriate for the home being built.
Understanding the Steps of the Typical Home Construction Project
Before you decide to have your dream home built, it is helpful to understand the steps you will undergo as your home is built. The typical steps are:
- Making sure the land is suitable for construction with a Perc test
- Buying the land
- Hiring workers to clear the land
- Digging a hole for the footings and the foundation
- Pouring concrete and allowing it to set
- Installing the first level flooring
- Framing the walls
- Putting insulation in the outside walls
- Installing bathtubs
- Putting roof trusses in place
- Covering roof trusses with plywood
- Installing doors and windows
- Finishing the roof and siding
- Building decks or patios
- Installing electrical systems
- Installing indoor heating and plumbing
- Putting sheetrock in place
- Completing wallpapering and painting
- Installing appliances
- Completing the finishing touches
As this process progresses, the contractor will need to be paid periodically in order to pay worker's wages and to purchase supplies. Therefore, the small business lender will allow you to access portions of the loan as your home is being built. Before the funds can be accesse, however, the contractor needs to provide the lender with updates regarding the progress.
While the home is being built, you might be asked to own make payments on the interest. As the home is being built, the mortgage may be an interest-only loan that has an adjustable rate. After the construction is complete, however, these terms may change. In fact, these loans generally change to standard mortgages with payments that are due at regularly scheduled intervals. This type of program allows you to just have one loan to pay for the construction as well as the purchase of the home.
Exploring Construction Loan Options
There are primarily two forms of construction loans you can select from: adjustable rate mortgages and fixed rate mortgages. An adjustable rate mortgage is one that begins with a low interest rate, but is periodically adjusted according to the prime rate as well as a pre-determined percentage. With this option, your mortgage payments may rise significantly. On the other hand, they may drop and you will have money freed up each month.
Fixed rate mortgages are generally available in 15, 20, 30, and 40 year lengths. With these loans, your interest rate is locked in when you take out the loan. In this way, you can be certain what your payment will be each month because it will never change. If interest rates drop you will need to refinance your home in order to take advantage of the drop. The amount of your interest rate will be largely dependent upon your credit score.
If you are thinking about getting a construction loan, whether you are looking for a variable rate or a fixed rate mortgage, contact FiveStarMortgages today. One of our experts will be glad to help!