House Construction Loan, Things you need to Know

The House construction loan or the construction loan is mainly used for borrowers who have detailed plans of how they want their house built.

They normally have plans drawn up by an architect and given to the builder who then builds the house to the plan specifications.

There are two major ways construction loans are normally done.There are construction loans that have two closings and there are also construction loans that have one closing.

The house construction loan that has one closing is normally referred to as a construction to permanent mortgage. The construction loan that has two closings required to separate mortgages.

Of the two types of construction loans the construction to permanent mortgage is the most commonly used.

The benefit of the construction to permit mortgage loan is that the borrower only has to close once. This gives the borrower the ability to lock in the mortgage rate from the beginning of the loan or float the rate until the construction portion of the house is complete.

A construction permanent mortgage combines the features of a house construction loan, a short term interim loan for financing the costs of construction and the traditional long-term permit residential mortgage.

There's one closing that occurs prior to the start of construction. At closing, funds are dispersed, to cover the purchase of the land, and the balance of the mortgage proceeds placed in an escrow account to be distributed as construction progresses

Here are a couple of important things regarding construction loans. The borrowers approval must be obtained before each payment is provided to the builder.

Unless a separate agreement has been made specifying responsibility, construction loan interest, commitment fees, inspection fees, title update charges, real estate taxes, hazard insurance, and other financing charges incurred during the construction. Are to be paid by the builder.

Borrowers must own or be purchasing the lot. If the borrower purchased a lot within the past six months and on some loans 12 months he or she must provide a copy of the settlement statement showing the acquisition costs of the land.

If the borrower owns the land, the value of the land minus the mortgage on the land will be considered as if applying cash or down payment to the loan.

For example, if a borrower purchased land today, and two years later decided to build a home. If that land increased in value $20,000 more than it originally appraised for then the $20,000 would be considered towards the down payment of the house construction loan.

This is just a general outline of a house construction loan to give you an idea how had this particular type of mortgage loan works.

If your thinking about building the house of your dreams it is really worth it but have patients because the process takes time.

As always if you would like any more specific information feel free to contact me using hour contact us contact us form and I would be glad to help you anywhere I can. Below are some additional links that that many people find very helpful.

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