{"id":788,"date":"2021-03-13T20:18:16","date_gmt":"2021-03-13T20:18:16","guid":{"rendered":"https:\/\/readyretiree.com\/how-do-construction-loans-work\/"},"modified":"2023-07-07T22:07:17","modified_gmt":"2023-07-07T22:07:17","slug":"how-do-construction-loans-work","status":"publish","type":"post","link":"https:\/\/prorealestateinvesting.com\/how-do-construction-loans-work\/","title":{"rendered":"How Do Construction Loans Work?"},"content":{"rendered":"\n
Everyone dreams of building a brand new home from the ground up to their exact specifications. However, many believe this dream is too far-fetched and simply out of reach. Could it be because of all of the complexities associated with construction loans, the lack of qualifications or not knowing where to begin? Basically, construction loans provide new homeowners with the money needed to build a home from the ground up.<\/p>\n\n\n\n
Construction loans are not like standard mortgage loans. They are usually short-term loans that have a maximum of about one year to be repaid or however long it takes to build the home.<\/p>\n\n\n\n
Construction loans are offered with variable interest rates that, in most cases parallel with the prime rate. A construction loan is often referred to as an interim loan, which is used to cover the costs associated with building a home from the ground up.<\/p>\n\n\n\n
Construction loans are not disbursed in one lump sum but in stages; based on the progress that is being made as the house is being built. As contractors make progress towards completing the home, part of the construction loan is paid out. Once the home has been built and the construction loan has been fully disbursed, it is then transitioned into a mortgage loan. This process may seem simple enough, however, it\u2019s quite different than simply applying for a regular mortgage loan.<\/p>\n\n\n\n
When applying for construction loans, the borrower must also meet additional requirements, such as a higher credit score than regular borrowers, a larger down payment, and proof of a well-put-together project plan.<\/p>\n\n\n\n
There are basically two types of home construction loans. Each of them will be explained in more detail below along with more details about the information mentioned above.<\/p>\n\n\n\n
Obtaining a construction loan is a very serious endeavor. It should not be entered into lightly. Adequate planning and preparation should take place beforehand with qualified professionals to assist you with the application process.<\/p>\n\n\n\n