Some people overlook the terms of a home construction loan. That’s because of the excitement that comes with a home-building process. However, getting a home building loan is a long-term commitment. Therefore, examine the terms of your construction loan carefully before appending your signature on the contract. Here are questions to ask before getting a home construction loan.
What is a Construction Loan?
A construction loan is a loan that a lender gives a borrower to cater to building a home. This loan caters to the cost of purchasing land and building a house from the foundation to completion. Unlike the loan of buying a house, the lender pays this loan in draws or installments, depending on the construction process step. That’s because the lender needs assurance that the funds go into the project.
How Much Can a Person Borrow with the Construction Loan?
The basis of this loan is the total acquisition perspective, meaning the land acquisition cost and construction or development expenses. Some lenders give loans of up to 95% of the total purchase price. Nevertheless, the amount a borrower gets is primarily contingent on the borrower’s creditworthiness and the market value of the project upon completion.
What Construction Loan Types Can a Borrower Get?
Lenders offer different construction loan types to cater to the needs of borrowers. However, construction-to-permanent is the most popular construction loan. Others include a construction-only, renovation loan, owner-builder loans. Find out what different loan types are about and their terms to determine the option that suits you.
You have several choices and factors to consider when choosing a home construction loan. Therefore, understand how different home construction loans work and then pick the most appropriate option. Also, talk to your contractor and other industry experts to make an informed choice.