Benefits of Taking a Construction Loan to Build Your Home
Constructing your own home will be cheaper than buying a similar home available in the market. It involves an experienced contractor, good plans and the correct financing which is the construction loan.
Construction loans were very high because the national prime rate was also very high sometime back. People were not comfortable paying lots of money to borrow funds, therefore they financed the construction of their homes with credit lines on existing homes or with their cash savings. 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. Construction loans are economical, and they ensure they are completed on a budget or on time due to the available in-built protection.
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 advisable to borrow money for such developments rather than draining your own 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. Your home is a greater investment if it is constructed on borrowed money.
Your project is protected by construction loans keeping it within the budget and within time. Ensuring your project is with the best builders is the first thing that the bank giving you the loan ensures. Some banks require that you include the contractor’s package for approval along with the construction application being made. In case your builder has previous lawsuits, complaints to the licensing board, bad credit all this will be captured by the bank and your builder will be rejected. The bank providing the construction loan will evaluate the construction from its onset to when it completes. After completion of a phase of the project, approved contractors are expected to make a new request for more funding according to most banks. Banks will from time to time, visit the site to make sure the job is satisfactorily being done.
The builder and the project have to undergo due diligence from the banks financing. When some loans are moved to permanent storage, this is known as one time close, and it happens after the construction phase is completed.