Construction loans have become a lot popular than it has ever before and more people use this means of achieving their dream homes. Thus, if you plan on building your dream house under the assistance provided to you by the government, it best that you do that now. But before you get a construction and hop along the hype train, it's advised that you first understand the loan package first.
The Construction Loan
Construction loan is a type of short-term, provisional loan that is focused on financing the construction costs of building a home. For more info on Loans, click here. Lenders or credit providers are to secure mortgage over the property that you are financing and will periodically pay your contractor as they go on with the work
Lenders or credit providers will have their different requirements and credit policies when processing a loan. But, they are not that too different from one another. Credit providers fund construction loans through different methods such as, lend you the amount necessary for you to cover your expenses in purchasing the vacant lot and for the inevitable construction that will then take place, on the time before the construction begins and that you have already borrowed money for the land, the first loan payment that the credit provider or the lender will make will go to paying the purchased land, through the use of Progress Payment Drawdown wherein the credit providers will break down the loan amounts and will then be paid to the construction company at each stage of completion.
One might think that a construction loan is just another name for the traditional mortgage, but it has some noticeable differences. Click this page to read more about Loans. Compared to a mortgage, construction loans are short-term loans that usually have a maximum span of 1 year. The borrowers are to pay the interest only payments on the duration of the construction. Interest is calculated in a different way where it is calculated from the portion of the amount of the loan that's drawn down. The construction of your home must begin within 12 months or a year of the loan settlement.
When are the payments drawn down?
The lenders will arrange the amounts before any payments are made to the construction company and will be paid at the completion these stages of construction: purchase of land, flooring, after roof installation including the frames and trusses, at the lockup stage, and at the end of the construction. Learn more from https://www.encyclopedia.com/social-sciences-and-law/economics-business-and-labor/money-banking-and-investment/loan.