Construction
loans are one of the most diverse types of loans out there in the
mortgage industry. So many factors of the construction project are used
to determine the terms and conditions the lenders
will provide if and when they decide to proceed with the loan.
For
instance, the size of the job and the amount of the loan, will it take
two months or two years? Are you doing the job yourself, or are you hiring
a contractor?
Are you purchasing the land
the construction will be built on? Where is the location of the property?
Etc.
All
of the above scenarios play a role in the decisioning process.
For
construction loans on large projects, the interest is paid only when the
money is used. For example, the contractor will purchase the material
to build the foundation of the project, you would only pay interest on
the amount of money the contractor used to build the foundation, not the
entire amount of the construction loan.
Once
the job is done, the total amount of the job is amortized into one monthly
payment including principal
and interest.
If
you have a relatively small project, such as an addition
to your existing home for less than $100,000.00, you might want to
consider a home
equity loan. It is a lot less of a hassle and paperwork. It will also
go through a whole lot quicker.
If
you are considering going with new construction, I beg you to take your
time and be very careful. Do your homework and educate yourself as much
as you can about the process. And, as always, shop around for the best
deal.
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