There are two types of construction loans. Construction-to-permanent and stand-alone construction loans. Construction to permanent provides funds in stages with a permanent mortgage upon completion. Stand-alone has two loans, one for construction costs and another to pay off the accrued debt.
Loan Highlights and benefits
A construction loan can be a good option for borrowers who want to build their dream home and have more control over the building process.
- Customization: With a construction loan, borrowers have the ability to design and customize their home to their exact specifications. They can choose their own layout, finishes, and features, which can result in a more personalized home.
- Control over the building process: With a construction loan, borrowers have more control over the building process and can ensure that the home is being built to their standards. They can also work closely with the builder to make any necessary changes or adjustments throughout the construction process.
- Potentially lower interest rates: Construction loans may offer lower interest rates than traditional mortgage loans. This can help borrowers save money over the life of the loan.
- Payments based on construction progress: With a construction loan, borrowers typically only make payments on the portion of the loan that has been disbursed to the builder. This can help borrowers manage their finances and ensure that they are not paying for work that has not yet been completed.
- One-time closing: Some construction loans offer a one-time closing, which can simplify the financing process and save borrowers time and money.
- Built-in contingency funds: Construction loans may include a contingency fund that can be used to cover unexpected expenses or cost overruns. This can provide borrowers with peace of mind and help them avoid unexpected financial burdens.