You have two options when planning to buy a property: apply for a traditional mortgage loan or get a construction mortgage loan. Whatever your choice may be depends on your available time, money, and capacity to pay your monthly amortization promptly. If you choose the former, you have to make sure your credit score is above average. On the other hand, if you opt for the latter, make sure that your finances are more than sufficient to support you house build project.
In this article, you will be given insight regarding construction mortgage and its different types to jumpstart your home building plan. This, in turn, will lead you to choose properly who does construction loans to prevent suspicious people from scamming you. Your objective in overseeing the entire construction of your dream house rests on how knowledgeable you are with this type of mortgage and how good you are in caring for your investment.
Construction Mortgage Defined
Simply put, a construction mortgage loan – also known as self-build loan – is used to finance the building of a house or other real estate project (i.e. buildings, warehouses, and the like). Construction loans are often used by real estate developers or independent house builders to oversee the erection of the property and to monitor the progress and accumulated costs that go with it.
As a first-time house builder, you need two individuals to help you out: a builder or a contractor and a lawyer. The former takes lead in the construction of your house from start to finish. The latter, on the other hand, takes care of the contract that binds you and the builder and then gives this to the lender (normally banks) for approval.
Types of Construction Loan
There are several types of builders’ loan to suit your needs. Go over them to gain understanding of how they could help you in making your project build successful. Moreover, you’ll know how to get a loan to build your own house without falling into any mortgage traps set by scammers and con-artists.
The following are the different kinds of construction loans available:
a. Construction-only loan – this type of loan is for short-term and issued for a year. They only cover the actual construction period which, obviously, is one year.
b. Construction-to-Permanent loan – this type of loan is what most homebuilders seek. Similar to a construction-only loan, this is offered only once but converts to a permanent mortgage.
c. Renovation loan – this type of loan (also referred to as 203(k) loan) is primarily used for renovation purposes and is insured by the FHA (Federal Housing Administration). If you are interested in this loan type, contact your local or federal housing agencies to know how to get money for renovations.
d. Owner-Builder loan – this type of loan is special since it requires the owner to submit proof that certifies knowledge, experience, education, and license to be the property’s builder. Once a proof is acknowledged by the lender, the owner can proceed with the house build project.
e. End loan – this type of loan is a traditional mortgage that can be applied for when the housing project is completed.
Construction loans are great for adventurous house builders who want to oversee their real estate property project. There are a variety of construction loans to choose from but the most popular one is the construction-to-permanent loan. First-time home builders face the challenge of proving themselves worthy to lenders by providing evidence of experience and license in erecting a structure. While there is no clear distinction between traditional mortgage and construction mortgage, the latter is more rigid in its terms and conditions while the former is more fixated on credit score only. Do your research to find a reputable construction loan provider and help you with your house build project.
Dominion Lending Oshawa is a trusted financial company that has helped 96 clients materialize their dream homes in Canada. Our vision is to help families build, develop, and/or improve their homes for them to live conveniently and comfortably.
Call 416-825-0142 or email firstname.lastname@example.org today to learn more.