Residential construction loans are necessary to provide families with the right money to create their own dream house. In comparison to mortgages, loans are different and have specific considerations that must be scrutinized first before applying. They are often less offered by companies compared to mortgages and applying to them should best be done prepared.
Residential construction loans means they are loans for the creation of a building or property. These loans are targeted only for residential locations which are mostly different classifications. The difference in classification is important because there are other categories in loans including those that can be given for industrial or for commercial loans. The type of loan that will be granted to the borrower will depend on the type of property that will be built.
That is why residential loans have certain aspects and conditions for repayment that will be considered when analyzing the type of loan. The loans can be transformed into mortgages once the property have been completed in order to have a more dynamic financing program. For residential construction loans, there are a number of types. Loaning can be classified as custom contractor loan or owner builder loan which all depends on the one who will be responsible for the construction project. For the first one, custom contractor loans is where the construction company is the one responsible for the project. On the other hand, owner builder loans is where the owner will be the one responsible for construction and execution of the project. There is also loans for making additions to an already existing property known as remodel construction loans. Pre-qualifying is a system where you can get approved for a loan ahead of time allowing you to get the best terms that are appropriate to your current financial situation. The advantage of having pre-qualification is knowing about the cost of the funding for construction that will be referred to loans. Through the process of pre-qualification, how much income and the credit score of the borrower will be determined in order to know how much will be the cost of construction, interest rate for it, schedule of payment and other terms.
There could also be different alternative options for loan types. You can have them at fixed or variable rates as well. During qualification, the rates can become locked. Depending on the project, there can be loans for six-months, a year and even up to two years in projects depending mostly on the scale of the development. The time frame for repaying will depend on the borrower’s credit score and history. Although these loans may seem short, they can be converted to mortgages once the construction of the property is finished. Once converted they can then be paid at installments plus the interest.