Residential Construction Loans
How to Finance and Build Your New Home
Choosing the right construction lender for building your new house is the most important part of the construction process. Note that a construction loan contains many variables that can cost you time and money or cause unwanted delays. Understand these variables before you go shopping for a loan. Lenders tilt the table in their favor so you want to find the table with the least tilt.
Construction Loan Interest
The first consideration is the interest rate on the construction loan. Construction loan interest floats with an index similar to prime rate so your rate may change during construction. Interest is paid on the outstanding balance of the loan, and the rate may be adjusted at any time if the index changes. In times of rising interest rates this can create an unexpected additional expense and you will want to plan accordingly.
Shopping for a Construction Loan
Learn how to shop for a construction loan and compare loan offers from several banks. Follow your bank loan each step of the way from including the construction contract, the loan application, the appraisal, the closing, and the construction loan draw process.
Use the loan calculator to compute your monthly mortgage payment to see how much you can afford.
Understand the terms for a contractor, sub-contractor and the risks of construction loan liens. Educate yourself about how construction loans work before venturing into any construction project.
Review the construction loan documents used during construction. You will want to understand the purpose of each document in helping to keep the construction process on track. Construction loans can present a considerable risk to the borrower and you should understand how to protect yourself.
Residential construction loans are difficult to obtain and you will want to apply to a lender that can get your deal done. Get several offers from qualified construction lenders so that you have a choice.