Can’t find the house you want? Perhaps you’re thinking of constructing one that fits your needs. If that’s the case, you might be wondering how much it costs to build a house and what types of construction loans are available. Here’s what you need to know about the various types of construction loans.
Construction-to-permanent Loan
Construction-to-permanent loans are a type of mortgage that allows borrowers to finance the construction of their home as well as the purchase of the property. These loans are available from a variety of lenders, and they typically have terms of either 15 or 30 years.
Borrowers who opt for a construction-to-permanent loan may be able to save money on closing costs, as well as avoid the hassle of securing two separate loans. This type of loan can also make it easier to budget for your home construction project, as you will only have one monthly payment to make. After the house is complete, you move in and the loan becomes a permanent mortgage.
If you are thinking about financing the construction of your new home, a construction-to-permanent loan may be right for you.
Construction-only Loan
This type of loan provides you with the funds you need to complete the construction of your house. You will be responsible for paying the loan in full at maturity or securing a mortgage to obtain long-term financing.
Funds from construction-only loans are disbursed upon reaching different milestones of the project, and you typically only need to pay the interest on the money drawn. They can be costly if you require a long term mortgage upon construction completion because you’ll be paying two sets of loan transactions and fees.
Another consideration to take into account is that your income may be affected during the construction period if you become unemployed or face other financial difficulties. If that happens, you may face obstacles in getting a mortgage and cannot move into your new house.
Renovation loan
Instead of building a new home, you can also upgrade your existing house and transform it into your dream home. There are many kinds of renovation loans available depending on how much your project costs. Getting a renovation loan is relatively easier than a construction-only loan.
Owner-Builder Loan
A contractor usually handles the operations of your home construction project. They do all the coordination work to ensure your house is completed on budget and on schedule. However, some borrowers prefer to act as their own contractor and certain lenders offer owner-builder loans to these individuals. This type of financing requires the borrower to demonstrate, by experience, education, and license, that they have the necessary skills to oversee the building of the home.
New Construction Loans
This type of loan deals with ground-up builds and helps to finance the construction period of your home. Once you secure this financing, you can freely customize your house to include everything you ever wanted. At InstaLend, we offer new construction loans to help you build your dream home. We offer a minimum loan amount of $50,000+ and a short term of 12 months for single-family properties that range from one to four units. Need more information? Contact our knowledgeable experts to guide you in the loan application process.
