The 411 On Construction Loans

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Construction loans are back by lenders who provide funding for newly built homes. These types of loans are typically obtained by home construction companies or by private builders that need the extra capital to manufacture a house from scratch.

Most construction loans are offered to large construction corporations that manufacture homes on a mass scale. Although smaller companies which focus on single home construction are considered to be a bigger risk some lenders will still consider them for a loan. A private home builder can also obtain a construction loan, but the process is increasingly difficult for them. However this shouldn’t discourage a person from trying to obtain this type of financing.

Keep in mind that construction loans have a higher interest rate and a shorter term period. After a home has been constructed the lender will require the loan to be paid back within a year. At this point most borrowers have to take out an “end” loan and combine it with their mortgage payments to pay off the amount of the house. Borrowers will also be required to make a higher down payment for a house. They will have to pay at least 20% or more.

Borrowers must meet specific qualifications for approval. These qualifications will require a person to make a certain amount of income and to have enough collateral to take out loan. If a business or private lender is approved, they will be put on a “draw schedule” which will allow them to receive money from a lender in stages during the construction period. After the construction process has been completed, the person who is building a home will have to pay it off through their mortgage payments.

Construction loans might be necessary for some businesses or private builders. If a construction company or private lender is not able to build a home from any other source this type of loan might be their best option.

A borrower should also be aware that their home might not be completed on schedule and that a newly constructed home will be valued less than what it was worth to build. Also a business or private builder might not be able to qualify for an end loan and could lose their house (without staying in it) due to foreclosure.

Ultimately, a construction loan can be beneficial for borrowers because they will have to pay just one set of closing costs, they will be approved for construction and permanent financing and a borrower will have flexibility for finding different permanent financing options. Mortgage rates can also be lower with this type of loan.

For more information, or to speak with an expert to see if a construction loan is right for you, give Sky Financial – The Mortgage Center a call today at (780) 486-6639.



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About Sky Financial

We incorporated The Mortgage Centre-Sky Financial Corp. in August 1992 in Edmonton Alberta. Furthermore we opened offices in Fort McMurray, Cold Lake, Grande Prairie, Red Deer, Stettler, Saskatoon, Moose Jaw and Prince George BC.

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