Construction Loans – Different than a Mortgage

Construction loans are different than regular mortgage loans as they aren't intended for a long duration. While you can take tens of years to pay off a mortgage loan, a construction loan is designed mainly just to get you through that process of constructing a home. Because of this, these loans can work a little differently.

The first thing to take into consideration when getting a loan for construction is how much you will be needing. This is obviously depending on the construction that is being done, but it is also dependent on whether the price of the land will be included in this loan or whether you are already the owner of the land you will be doing the construction on.

Sometimes the loans specifically for construction have a fixed interest rate, and sometimes a variable interest rate. The variable interest rate loans for construction are set at a short-term rate such as the prime interest rate. Usually the payments to the loan are interest only during the time of construction. The interest collected is on the total amount drawn so far from the loan.

Once construction on the home is complete, the loan is either due in full, or many times it can be rolled over into a regular mortgage loan. Completion of construction in this case means that the home is in a state that is ready for the homeowner to move in. The advantage of rolling the loan from a construction type into a mortgage loan is that there is only one application and one closing for the loan.

Whichever options you choose for your loan at the time of construction, the benefit is always that you are loaned the money to build your home, yet you are making small payments during construction on only the interest.

Read more on Home Loans here.

Add To Favorites

Enter your search terms Submit search form

For more information on loans go to The Loan Blog!