Is a Construction Loan Better than Buying a Home
If you compare a house available for sale with your dream home, you will find that yours is cheaper. It involves an experienced contractor, good plans and the correct financing which is the construction loan.
In the recent past, the prime rate for the region was high, and it caused the construction loans to be costly. People did not like the idea of paying large sums so they can borrow funds, as a result, they decided to finance their home constructions with their savings or the credit lines of existing homes. People were faced with the problems of running low on cash, or their budget was exceeded by the project. Many people are now turning to construction loans as they are now available at low rates. Construction loans have in-built protection for a project ensuring it is finished on time and within the budget.
Although values are dropping, constructing a home is always cheaper than buying a similar home 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 better to borrow money for such project instead of using up your money. You can invest elsewhere, since your return on investment is increased through the used leverage a fact that is known by most real estate agents. Borrowers of construction loans only need to invest a minimum amount in the project and the loan finances the rest. If a construction loan finances the building of your home, your home is a great investment.
Your building project remains within the set time frame and within the expected budget through construction loans. It is the role of the bank financing your project to see to it that your assignment is under well-known builders. Several banks ask that when you are making your construction loan, you include the contractor package to be approved. 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. Additionally, the financing bank will monitor the construction process from when it starts to its completion. After completion of a phase of the project, approved contractors are expected to make a new request for more funding according to most banks. To ensure the job is being done satisfactorily, banks will from time to time make site visits.
The builder and the project have to undergo due diligence from the banks financing. After the phase of construction is completed, there are loans which will roll to a fixed mortgage which is known as one time close.