Construction loans provide financing for future homeowners to purchase materials and labor for the construction of a home. Most often, the materials and labor are purchased for use on land that has already been purchased. In this case, the land may be used as collateral for the construction loan. These loans typically have terms between twelve and eighteen months in order to accommodate the time needed to build the home, with the loan being received in payments over time instead of a lump sum. In addition, some companies automatically convert the loan into a mortgage once construction is complete.
There are different types of construction loans that can be used to build your home. Here are some common types:
Construction-to-permanent loans finances the construction of the home, then converts to a mortgage once building is complete. This type of loan is useful for homeowners who want to lock in mortgage financing and save on closing costs.
Construction-only loans are short-term, adjustable-rate loans used to complete construction. Once construction is complete, the loan must either be paid in full or refinanced into a mortgage. This type of loan has two application processes and sets of closing costs.
Owner-builder loans make draws to the owner-builder instead of a third-party contractor. Contracting or licensing may be required for approval.
Renovation loans are the closest to traditional mortgages. They cover the cost of purchasing a home and doing major renovations on it. The amount of the loan is typically based on the anticipated value of the post-renovated home.
If you are considering building a home on land or purchasing a fixer-upper, contact the experts at Navigate Firm. With our loans, you will have the financing you need for construction materials and labor so you can have the home you have always wanted.