Construction loan work
Construction loans are given out to a person when he is in the process of building a house. This allows him to pay the contractor when he can\'t do so out of his own pocket. It\'s a wonderful kind of loan in that it is specific to the needs of building a house. A construction loan is known as a "story" loan. This is because a person needs to tell the lender the entire story of the upcoming construction.
Unlike a mortgage, this kind of loan is not standardized or underwritten. While construction work is going on, the homeowner usually only have to make payments on the interest. When the house is finished (that is, when it has its certificate of occupancy), he begins to pay off the whole loan. However, these kind of loans are not meant to be drawn out over a long period of time.
One can, if he like, turn his construction loan into a construction-to-permanent loan. This is when the original construction loan becomes his mortgage loan. Many people choose this option because there is the simplicity of only one application and one closing. It\'s also a good idea to purchase a rate-lock agreement that is good until the expected end of construction.
Construction loan aren\'t always just for constructing new buildings or multi-building complexes. They can be used toward the expansion or remodelling of an existing structure, such as an old apartment complex, for example. Some people get construction loans to re-finance an existing mortgage or acquire a newly built structure.
Generally, however, construction loans are short-term loans given during the construction process. The lender - either a private investor, bank, or other financial source - makes periodic payments to the builder while the structure is put together. Like other specific loans, there are a number of criteria that must be met before the loan is approved and given.
Getting a construction loan is easy... the second or third time a person gets one. The first time, however, can be very difficult, especially for larger projects. Banks and other lenders prefer to see a person or business with a proven track record ; if the applicant has a project or two under his belt, his chances will improve greatly. It is important to be knowledgeable while applying for a loan.
One should know exactly what he needs, what the local real estate market is like, and where his repayment will come from. If a lender doesn\'t see a viable means of getting the loan paid back, the applicant probably won\'t get approved. Learning what the market can bear is a great way to learn the local trends, prices, and construction ins and outs.
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