Major Home Remodel - Things To Consider With Your Home Addition | Loans

By RickGomez
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Home construction loans are a specialized field. They differ from any other type of loans or financing. Some lending companies specialize only in construction loans. Lenders of this sort can be found across the country. Finding a lender, however, is not the complicated part of the process. A construction loan, though usually being a wearisome process, can be attained. Though getting a construction loan can be a tedious process, it is a must for new home construction.

How Construction Loans Work Construction loans, being story loans, require the lender to know the story behind the planned construction before they will lend the money. Because of this, these loans are not standardized like many loans are underwritten to Fannie Mae or Freddie Mac guidelines. With that being said, there are usually some very common features of these loans. They usually require interest-only payments during the construction process and become due upon completion. Completion usually means that the house has gained its certificate of occupancy.

You, Your Bank, and Your Construction Loan When choosing a bank to do business with it is always best to choose one that has experience in new home building and also can offer you a loan officer that has experience in administering construction loans. Without a good relationship with your loan officer your experience in building your dream home could go horribly wrong. So how does a construction loan work and what is the dynamic between you and your bank?

When you get approved for a construction loan you are basically getting approved for a line of credit to build your home. The bank does not just cut you a check when the loan is approved. After the loan is approved you and the bank work together to make sure that the general contractor secures all of the necessary permits and gets everything in order so that you may start construction. It is not until the bank is satisfied that everything is in order that they will approve the beginning of construction. As your home construction proceeds, the bank will release periodic payments to you based on the terms of your loan. You use these payments to pay the general contractor, sub contractors, and any other expenses that may come up during the construction of your home. But be careful, balancing these funds is not easy and that is where an experienced bank officer can be very helpful.

Another important part in a construction loan is how much of the project cost the lender will be willing to lend. If the land is already owned by the loan-taker, then that can be considered equity on the loan.

Many homeowners use construction-to-permanent financing programs. This is where the loan is converted to a mortgage loan after the certificate of occupancy is issued. This makes for only one application and one closing. Simplifying the process in this way is a great and a very effective, time-saving idea.

Building a new home can be both an exciting and harrowing experience. If you do some research, follow some guidelines, and make sure you partner with a bank that has experience then you can reduce the issues that may come up during construction.

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Dont forget that you can download a great construction loan ebook 15 things you should know before you even think about applying for a construction loan.

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