Is a Construction Loan Better than Buying a Home
Constructing your own home will be cheaper than buying a similar home available in the market. All it requires is a construction loan that includes the right financing, good plans, and experienced contractors.
Construction loans were very high because the national prime rate was also very high sometime back. People did not like the idea of paying large sums so they can borrow funds, as a result, they decided to finance their home constructions with their savings or the credit lines of existing homes. In case of budget exceeded their saving or they ran out of their savings they fell in problems. Construction loans are now available with low rates that is why many people are turning to them. They are economical and have the protection that is in-built for your project to make sure it is completed on the set budget and on time.
Even though the values for homes are dropping, home construction is low in cost than buying the home available in the market. This is inclusive of purchasing a “tear down” or a lot and constructing it from the start, and making improvements to the home or the bought property from foreclosure. It is not advisable to use up your savings for such projects instead it is better to borrow money. Most real estate investors know that your leverage increases your return on investment and enables you to invest elsewhere. Borrowers of construction loans only need to invest a minimum amount in the project and the loan finances the rest. This means that if you finance your building through debts, it makes your home a greater investment.
Construction loans provide safeguards which keep your venture under budget and on time. Ensuring your project is with the best builders is the first thing that the bank giving you the loan ensures. You will be expected by the financing bank to include along with your construction loan application, the contractor’s package for approval as well. Your builder will be rejected by your financing bank in case they bad credit, previous lawsuits, or if any complaints have been lodged in the licensing board because it will capture all this information. Your home construction will be watched from start to finish by the bank financing the construction loan. The approved contractor will be expected to make requests for more finances after they complete a given part of the project. Banks will from time to time, visit the site to make sure the job is satisfactorily being done.
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.