Building a house in the perfect location requires plenty of patience and an understanding of the process.
Current figures show that land development in the United States is a $12 billion industry.
Land construction loans allow buyers to buy land to build on. Read on to find out more about this loan and what you should know about the process.
How Do Land Construction Loans Work?
Construction loans are short term and permit for the construction and buy of real estate. These loans let you buy land, build a house on land you already own, or even make renovations to an existing house.
With a land development loan, you’ll only receive the amount of money you need. Money is awarded in “chunks” as each part of the project is completed.
You will only pay interest on the amount of money you borrow. A standard loan gives you 100% of the money up front, which you must instantly pay interest on the total.
When you get a home building loan, you only make interest payments based on the outstanding balance. In some cases, you do not start making payments until six to 24 months after you get the loan.
Contractor Payments During Construction
Once you meet the construction loan requirements and get approved, the building process begins. As each milestone is completed, the builder requests a “draw” for payment from your lender.
You can even get a construction specification loan. Click this link to learn how it worksand what it means to you.
An inspector verifies that the work is complete before lots are awarded to the builders. If everything looks good, your creator accepts the payment and moves on to the next stage.
Funding Information and Loan Repayment
Most home construction loans last less than a year. Once the home is built, you’ll pay it off with a new, permanent loan. Construction loan rates vary depending on your credit score, your lender, and the size of the loan.
The official construction completion date is when the construction loan term ends. You will need a professional appraisal of the home before you can refinance it on a new permanent mortgage.
One way is to apply for a new loan after the home is finished. You will must reapply and pay closing costs as if you were getting a new mortgage.
Another way to transfer to a permanent loan is to make a single closed loan. This will eliminate the need to apply and pay closing costs twice. Talk to a mortgage lender about your options to determine which one is right for you.
Build Your Dream House
If you want to build a new house on a piece of land then getting a land development loan is the best choice. Keep these tips in mind to help you find a loan that fits your needs.
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