You can easily find traditional mortgages, but they usually come with a catch. You can just borrow money to purchase a house that’s been built already. On the other hand, construction loans can be used for everything that you need to build a custom home or even a commercial establishment. They can also be used for renovating your property or purchasing a land.
What are construction loans for your custom home?
If you need a short term loan to build a custom home then you need a construction loan. You can use the loan to purchase a lot, build on a property that you already have, or remodel an existing structure, in case the program permits. Construction loans are much like a line of credit since you only get the amount of money you need to finish each phase of a project. So, you’ll pay only the interest on the amount that you borrowed.
You will only be paying for the interest during the construction phase of your custom home Myrtle Beach. But it will be based on your outstanding loan balance. In most instances, payments will start six to twenty four months after you get the loan.
Disbursement To Contractors
As you achieve milestones in your project, you or the custom home builder can ask for draw payments for the work that you have completed. An inspector should check to make sure that the work has been completed. However, these inspectors don’t really say anything about the work quality. But if everything looks fine and satisfactory then a disbursement will be given to the custom home builder.
Construction loans last less than one year and you may pay them off with a different permanent loan. The construction loan generally ends when the construction is finished. You have to get an appraisal as well as inspection on the completed property if you wish to retire the loan.
You can use the funds that you get form a construction loan from nearly all stages of your project including buying the lot, excavation, as well as pouring the foundation, framing, and even the finishing. You may even use the funds to build basic sheds, garages as well as other structures in your home that’s allowed by your lender’s policies.
Just like other loans, you should not expect to borrow 100% of the actual amount you need. Lenders tend to place some equity into your deal and they may ask you to put a 20% downpayment.
Come Up With A Solid Plan
To get a construction loan, the first thing you need to do is qualify. So, you should have good credit as well as favourable ratios. It’s better if you can give a down payment of 20%. Don’t forget that you should also present a proof that you have a consistent income.
The bank needs to approve your construction plans that is what makes construction loans unique. In case you are purchasing from a custom home builder that works with a specific lender on a regular basis, then you may be able to secure an approval much easier. For custom homes, your lender will ask all the information about your project. This includes details about your custom home builder, the process involved, schedule for every phase, the expected costs, and if the structure meets the local requirements and local codes.