When searching for our dream home, we often don’t find what we are looking for – add the high cost of renting houses in Florida, and you probably realize that building a home from scratch is the best option. But what about funds?
Construction loans are a useful option to fund expensive projects. From purchasing the land to paying for labor and material and the best home builders in Saint Petersburg, FL, here is what you need to know about construction loans.
What is a Construction Loan?
Construction loans are short-term home-building financing that is used throughout the process of building a house. The loan covers the following expenses:
● Drafting plans
● Purchasing land
● Taking out permits
● Payment for building materials
● Payment for contractor labor
How do Construction Loans Work?
The duration of construction loans to build a house is usually issued for 12 to 18 months, during which time the home must be built. Lenders will require access to a realistic construction timeframe, budget, and detailed plans.
The loan is paid in a series of installments during the building process. It is considered a higher-risk loan, and it’s the reason that it has higher loan rates than traditional mortgages.
You can expect up to six inspections from an appraiser who will be assigned to monitor the progress. The appraiser has to approve the different construction stages for additional payments to be made to contractors.
Types of Construction Loans
Lenders have created several types of construction loans to accommodate the needs and requirements of all clients. If you’re wondering how to finance building a house, here are a few options.
Construction-only Loan
It’s a short-term loan with an adjustable rate which must be paid in full upon completion of the project. You can also refinance the loan into a mortgage. It’s a more costly loan since you’ll need two application processes and payment of two closing costs fees.
Construction-to-permanent Loan
This type of loan allows you to convert the loan into a permanent mortgage once the project is complete. It allows homeowners to save money on closing costs and choose between a fixed or adjustable-rate mortgage.
Owner Builder Loan
Issued to homeowners who can demonstrate experience as home builders. Lenders don’t always let homeowners act as contractors and will, in most cases, allow it if the homeowner possesses a contractor’s license.
Renovation Loan
Used by homeowners buying a fixer-upper which pays for the costs of buying a home and doing major expensive renovations. There are several options for taking out a renovation loan, depending on the money spent on the project.
Construction Loan Process
Once you understand what a construction loan is, getting it is a bit complex. You need to prove that you have a good to excellent credit score and sufficient income to pay it off.
You will be asked to make a down payment, and the amount varies based on the amount you are borrowing. Lenders will ask for detailed project and construction plans to be approved, so be sure to demonstrate that your builder and general contractor are qualified, insured, and licensed.
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Homeowners can always save on home-building financing by using the most affordable home remodeling contractor in St. Petersburg. H.E. Feldman & Son can transform your current home by adding new rooms and features to match your preferences. With over 40 years of experience in the business, we make all of your ideas a reality!Get a free estimate today and build your home in no time.
