Construction loans are defined as short-term loans used to finance the building of a home or another real estate project. It is taken out before the borrower obtains a long-term loan, and has a higher interest rate because of the shorter period, usually for just a year. Downpayment is also higher because of the risks involved in the short-term loan. New home construction loans are usually taken by individuals who want to build their houses from the ground up, instead of purchasing an already-built home. The loan ends when the home is completed, and a new loan is often taken out to pay the construction loan.
New home construction loans are not a popular choice compared to traditional mortgages, but there are plenty of lenders offering them – from traditional banks, local credit unions, or regional banks. Here are 5 things to look for when shopping for new home construction loans:
- Interest rates. Because of the higher interest rates for construction loans, choosing which lender offers the rate that will fit your budget is the way to go. This will also give you room to negotiate the monthly payments.
- Payment options. Some lenders offer an interest-only option wherein the repayments during the construction period cover only the interest, instead of the loan amount itself. This option is only advisable if the borrower will be able to get a higher loan once the construction loan ends in order to be able to repay the loan amount.
- Deposit amount. Some lenders require a deposit of a minimum of ten percent on the construction project’s final value. Shop for a lender that can require over twenty percent deposit so you will not have to pay the Lender’s Mortgage Insurance, which is a separate amount itself and might put a dent in your overall budget.
- Upfront fees. Choose a lender that offers to include all fees upfront instead of springing a surprise on you when there are additional fees to pay for. These fees, like settlement fees, valuation fees, or other monthly fees, are things to consider for your budget.
- Lender experience. Choose a lender that has a good history with construction loans. How many projects have they financed and how helpful are they during disbursements? Lenders require a thorough application process, and once qualified, how soon do lenders disburse the funding to the builders? Is it smooth-sailing, or would there be any other snags?
Blake Mortgage is a lending company that makes it easier for the borrower to avail of new home construction loans. With their “all in one” or “single close” construction loan, you can customize your loan so that you can avail of the loan and do not have to apply for another loan before the end of your project in one single application. With the custom loan, you can opt for the interest-only option for 12 months and once the project is complete, this can be rolled into a fully amortizing loan for over 15 or 30 years.
Blake Mortgage offers more than just loans, they also offer a dedicated manager to assist you from the start of your application and works with you until completion. With a partner like this, building your dream home from the ground up has one less stressor on the checklist. Reach out to blakemortgage.com and discuss how you can take on a new home construction loan.
