When you get ready to search for a home loan, the number and degree of obstacles faced with will depend on the type of new home. For instance, if the home were an existing new home, then finding lenders ready to loan money would be much easier than if you want to build a new home. The reason is that a mortgage loan is easy to find while construction loans are a bit more difficult. Then when you do find a construction loan, you will find a wide range of terms and fees.
The bottom line is that if you plan to build, unless you are among the one in five paying cash, you would need a construction loan. Therefore, if you want to build, you need to keep a few things in mind. For instance, it is important to understand constructions loans. That way, you will have better knowledge and information for shopping and asking questions.
Typically, construction loans are broken down into two options. First, there is the “all in one” loan, which is also known as a rollover or a construction-to-permanent loan. This type of loan is designed to revert to a traditional mortgage once the construction of the home is done. Then second type of construction loan is known as a “construction only” loan. In this case, the loan is due once the construction is complete, meaning it has to be paid off at that time or replaced with a standard type loan.
The thing about construction loans is that both have pros and cons. For instance, in the first scenario, you would only be required to pay set fees and go through one closing, which cuts back a lot of hassle. While the all-in-one loan typically converts to an ARP, there are some FRM out there for both 15 and 30-year options. For this reason, you would need to conduct comparison-shopping to learn all your possibilities.
The greatest benefit of choosing the all-in-one loan is that you would have the opportunity to choose from literally thousands of conventional loans instead of being locked into what construction lenders offer. In other words, you have the ability to find the perfect loan for your needs. Therefore, while some people will choose the second type of loan, we suggest you investigate more into the all-in-one loan.