Benefits of Taking a Construction Loan to Build Your Home
Constructing your own home will be cheaper than buying a similar home available in the market. It all includes the right financing, experienced contractors and good plans which are known as a construction loans.
Construction loans were very high because the national prime rate was also very high sometime back. People were not comfortable paying lots of money to borrow funds, therefore they financed the construction of their homes with credit lines on existing homes or with their cash savings. They would face problems in case they ran out of cash or if the budget was more. Many people are now turning to construction loans as they are now available at low rates. They are economical and have the protection that is in-built for your project to make sure it is completed on the set budget and on time.
Buying a home available in the market will be expensive compared to constructing the same kind of home despite the home values dropping. This comprises of buying a “tear down” or a lot and constructing it from the start and improving the home or a bought property from foreclosure. It is better to borrow money for such project instead of using up your money. Most real estate investors know that your leverage increases your return on investment and enables you to invest elsewhere. Borrowers of construction loans only need to invest a minimum amount in the project and the loan finances the rest. Your home is a greater investment if it is constructed on borrowed money.
Your project is protected by construction loans keeping it within the budget and within time. Initially, the bank offering the construction loan makes sure your project is in the hands of a recognized builder. You will be expected by the financing bank to include along with your construction loan application, the contractor’s package for approval as well. It is the right of the bank financing your construction loan to reject your builder if they capture any past lawsuits, bad credit reports or complaints in the licensing board. Additionally, the financing bank will monitor the construction process from when it starts to its completion. Banks offering construction loans will require that the contractor requests for reimbursement after completion of every work phase. Site visits made by the banks will be to oversee the satisfactory completion of the job.
Due diligence is done by the bank offering the loan on the project and the builder. When the phase of construction is completed, there is the one time close when some loans roll into a permanent mortgage.