You can take out a construction loan to have your dream house built. While this type of loan is short-term, it also carries with it a high interest rate. Most construction loans give you up to a year to pay the amount off in full. The construction of your house must be done within that one-year period. In addition, you have to obtain a certificate of occupancy.
The money you get from a construction loan must be used to fund buying the land the house will sit on, as well as materials, labor, and any permits that are necessary to have. When seeking a loan you will want to take all these things into consideration. You should discuss them with the bank you intend to get the loan from. It is important to find out about everything that the bank will use to calculate the value of your loan.
You may find a contingency in your loan contract that states how unexpected costs will be handled throughout the construction process. If there are no unexpected costs, a contingency like this one may allow you to add on to the project as the construction of your new home continues. In most cases, a construction loan will cover extra costs such as landscaping and the installation of permanent fixtures.
Most of the time, you will find that construction loans carry with them a higher interest rate than the average mortgage does. Since you aren’t putting up any collateral to get a construction loan, it is considered to be more of a high-risk loan than a mortgage would be. This means that you will want to discuss in advance with your lender subjects that include your budget for the project as well as a timeline for completing the construction. The more detailed your plan is, the more confidence the lender will have in you.
After your lender approves your detailed plan, you will have to agree on a schedule and ensure that all of your interest payments are made in full and on time. Only then will you be on the way to having your dream home built. For more information about construction loans, be sure to make an appointment with Magis Funding.