How Effective are Construction Loans in Building Your Home?
If you compare a house available for sale with your dream home, you will find that yours is cheaper. It involves an experienced contractor, good plans and the correct financing which is the construction loan.
Construction loans were very high because the national prime rate was also very high sometime back. People decided to use their cash reserves, or credit lines of existing homes to finance the construction of their homes instead of using large sums of money to borrow funds. They would face problems in case they ran out of cash or if the budget was more. There are available low rates to construction loans that many people are turning to them. Construction loans have in-built protection for a project ensuring it is finished on time and within the budget.
Buying a home available in the market will be expensive compared to constructing the same kind of home despite the home values dropping. This comprises of buying a “tear down” or a lot and constructing it from the start and improving the home or a bought property from foreclosure. It is not advisable to use up your savings for such projects instead it is better to borrow money. Leverage boosts your ROI as most real investors know and you can invest elsewhere. In construction loans, only a limited funds amount is injected into the project, and the loan finances the rest. If a construction loan finances the building of your home, your home is a great investment.
Your building project remains within the set time frame and within the expected budget through construction loans. It is the role of the bank financing your project to see to it that your assignment is under well-known builders. Some banks require that you include the contractor’s package for approval along with the construction application being made. In case your builder has previous lawsuits, complaints to the licensing board, bad credit all this will be captured by the bank and your builder will be rejected. Additionally, the financing bank will monitor the construction process from when it starts to its completion. The approved contractor will be expected to make requests for more finances after they complete a given part of the project. Site visits made by the banks will be to oversee the satisfactory completion of the job.
Financing banks offer due diligence on the project and builder. After the phase of construction is completed, there are loans which will roll to a fixed mortgage which is known as one time close.