Residential Construction Loans are great for providing families the necessary funds to construct their own dream home. Loans are very different from mortgages and has specific considerations that must be understood properly before one should try to apply. To compare them with mortgages, this is less likely offered and should have proper preparation before application.
Residential construction loans refer to loans made for the construction of a new property. The loans are only specific for residential locations which have very different classification compared to others. Distinctions for this type of loan is necessary because of the many categories loans could be given to people such as industrial and commercial loans. The type of property that is going to be built will determine the type of the loan.
Residential loans will have aspects in the repayment process that shall be considered in the analysis of the loan. Once the property or building has been finished, the loans can be converted into mortgages in order for malleable approach to financing. Loaning in residential contruction can be done through a few methods. Loaning can be classified as custom contractor loan or owner builder loan which all depends on the one who will be responsible for the construction project. For the first one, custom contractor loans is where the construction company is the one responsible for the project. On the other hand, owner builder loans is where the borrower themselves will be responsible for the execution and construction of the project. Remodel construction loans are also another type which are used for renovation or rebuilding of already existing buildings or property. If you want to get approved on a loan with the best terms that are appropriate for your financial situation, pre-qualifying for the construction loan is very important. An advantage of getting pre-qualification is contractors having knowledge of how much funding for the construction the loan will be. Through the process of pre-qualification, how much income and the credit score of the borrower will be determined in order to know how much will be the cost of construction, interest rate for it, schedule of payment and other terms.
There could also be different alternative options for loan types. One can get them in a fixed rate or a variable rate. The rates become locked during qualification. Loans can be given in half a year, 1 year and two years depending on the scale of development. The time frame for repaying will depend on the borrower’s credit score and history. Although the loan may appear to be short, in actuality they will be converted to mortgages after the construction is completed. Once converted they can then be paid at installments plus the interest.