The Joy of Constructing Your Own Home

The joy of constructing your dream home according to your specific requirements and tastes is unmatched. Whether you are looking to get a home or office constructed, and need to get the cost of the same funded, you need to approach a bank or a housing finance company to get the necessary loan. Using a new construction loan calculator will allow you to know the amount of loan you require or are eligible to get for funding the construction of your new home. A unique feature about construction loans is that they are not disbursed in one go. Instead their disbursal is linked to the various stages of completion. Also, the borrower pays interest on the money actually used and not the total loan amount.

Understanding New Construction Loans

 

These are short term loans that enable borrower to fund the construction cost of a house or an office. Once the construction is completed the owner of the property needs to get a permanent loan and use the same to pay off the interim new construction loan.

These loans differ from the standard mortgage loans in terms of their release. New construction loans use a draw system of payouts wherein the lender pays the proceeds of the loan at specified intervals after verifying the amount of the work completed on the concerned project. This verification is done by lender’s own staff or a third party appraiser authorized by the lending agency.

Types of New Construction Loans

 

New construction loans can be taken by builders or individuals getting their own houses built. Loans to builders are given out when they are building homes for clients or rebuilding a home for sale upon completion. The loan amount is subject to limits based on a specific percent of the value or the purchase price of the home and can be easily be calculated by using a new construction loan calculator.

Individuals owning a plot and looking to fund the cost of construction on the same may also apply for new construction loans, provided they submit the requisite building plans and copies of necessary approvals from the authorities. And once the home is built, the owner needs to get a mortgage on the built property to pay off the construction debt.

Another option is a construction-to-permanent loan. Such loans typically require two closings with two separate sets of legal documents. The first is to obtain new construction loan and the second is for the permanent funding on completion of the construction.

Some lenders, however, may allow one time closing for construction to permanent loans. Such loans are highly advantageous, as they involve only one set of closing costs and lock in the interest rate at the time of loan sanction. This option is very lucrative in an era of rising interest rates. This type of construction loan automatically converts to a permanent phase once construction is complete. The qualification for such loan is difficult due to the absence of the completed house as collateral to back the loan during the construction period.

A new loan construction calculator can help you decide the amount and the terms of the loan on the basis of the estimated cost, time of completion and on the percentage of your contribution to the construction cost.