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| Which loan is right for me? |
Years
in
the house |
Recommended
Program |
| 1 - 3 |
3/1 ARM, 1year ARM or
6 month ARM |
| 3 - 5 |
5/1 ARM |
| 5 - 7 |
7/1 ARM |
| 7 - 10 |
10/1 ARM, 30 year fixed or
15 year fixed |
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How construction loans differ from conventional loans 
April 12, 2008
Construction loan companies differ in their lending patterns. Mortgage lending is based at maximums of 80% to 90% of current value of the property. Construction loans aren't as easy to find, or understand, as a traditional 30-year mortgage. Not all lenders offer construction loans, and those that do vary widely in the kinds of terms, rates and fees they offer. Construction loans, automobile loans, second mortgage loans, commercial loans and other consumer loans make up the rest of the total loan portfolio.
Construction loan is a short-term loan unlike mortgages and home loans that have a protracted repayment. The loan provider in this case will offer the loan until the borrower regains the occupancy rights to the home. Construction loans can be structured up to a maximum of 18 months, and interest reserves can be built right into the loan amount. You use the bank\\\'s money to build your dream . Construction loans, conventional permanent mortgage loans, participating mortgages, tax-exempt and taxable credit-enhanced bond financings, private placement financings and government-assisted financings, to name a few, are transactions regularly managed by the Real Estate Finance Group. Many of these transactions include complicated multi-creditor issues and intricate arrangements with public agencies and authorities.
Borrowers using a construction loan to build a home will typically need another traditional mortgage to pay off the construction loan when it comes due. This process entails two mortgage applications with their associated fees, and two closings. Borrowers can pay off the amount with small interest only repayment. Due to this reason, borrowers can enjoy the benefit of lower installment option. The popular one time close construction is mostly requested nowadays due to not having to pay construction loan costs twice.
Interest only payments are made monthly based on the existing loan balance. During construction your rate for permanent financing will be floating and cannot be locked until the appraiser/inspector has confirmed that the home is within 30 days of completion. Interest rates for the CTP mortgage are based on the daily current market interest rates. The Home Buyer will receive the same low rate for the interim construction loan and for their permanent mortgage.
Lenders typically require that you show proof of liquid assets sufficient to pay principal, interest, property taxes and hazard insurance for 6 months (reserves). If you deplete your reserves by paying construction costs, than you may not be able to qualify for financing. Lenders will also run a credit report and company profile report, checking to see if the the builder or contractor has an IRS or other delinquencies. If something unexpected pops up, this can bring your construction project to a stop. Lenders can come in many forms. You might want to go back to the lender for the house you’re living in now or go to nationwideconstructionloans.com
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