When it comes to construction loans, some individuals may be unaware of them as an option. Of this program, there are two types of loans to consider. First off, there are construction to-permanent-construction loans. During these loans, you essentially borrow money to pay for the construction. When it’s complete, the lender will then convert the balance of the loan into a permanent mortgage. Essentially, this type of loan accomplishes two tasks. With a construction to-permanent-loan, there is only one closing which subsequently reduces the amount an individual pays in closing fees. During the construction phase you pay interest strictly on the outstanding balance. The lender will convert the construction loan into a permanent mortgage once the contractor has finished. Once this has been completed, you then have the option to choose the terms of your mortgage.
There are also stand-alone construction mortgages. In this situation, the first portion of the loan covers construction costs. When you move in, you are then given a mortgage to pay off the construction debt separating it into two different loans. The stand-alone-construction loan will likely allow you to make a down payment, this being an incredibly beneficial aspect. This can be an advantage for someone who plans on staying in their home until the construction has finished. Although, differently from construction-to-permanent loans, you will be required to pay two closing fees.
Construction loans can be great options for differing individuals dependant upon on your circumstances. Contact your lender today to discuss construction loans and learn more about these options!