Construction Loan Facts

What is a construction loan and how does it work? That is a good question and one that I am still figuring out to a certain extent. Here is what I have learned so far. To start off, they are what is defined as a story loan. Basically that means your lender will need to know the ins and outs of the project and will from that information determine the quality of candidate you are for the loan. If they deem you to be a good candidate, you’ll be offered the loan. A construction loan, however, differs from a standard home loan in that you will not get the entire loan amount up front. Rather, you will get it in installments as work is completed--partly why I need to get estimates for as much of the project as possible. Also you will not be paying principle on the loan until the project is completed. The interest you are paying is only interest on the amount you have withdrawn to date. At the time of completion, the loan will be converted into a standard mortgage for whatever amount you withdrew throughout the course of the project. The project will be considered complete only after all of the said work is complete. Click here or here if you’d like more info on construction loans.