Residential construction loans are necessary to provide families with the right money to create their own dream house. Loans are different in terms of mortgages as there must be an adequate understanding about it before one should try applying. To compare them with mortgages, this is less likely offered and should have proper preparation before application.
Residential construction loan often refers to the construction of a building or property. The loans are only specific for residential locations which have very different classification compared to others. There should be a distinction on the type of loans that is used since there are other categories of loans that are available to the public such as commercial loans and industrial construction loans. The type of loan that will be granted to the borrower will depend on the type of property that will be built.
There are certain conditions and aspects that the residential loans that will be considered in this type of loan. After a while, loans can be converted to mortgages if the property has been completed so that financing options will be more malleable. Loaning in residential contruction can be done through a few methods. The loan can be identified as custom contractor loan or owner builder loan depending on who will be responsible for the construction. Custom contractor loans in particular, the constructor or construction company is responsible for the project. On the other hand, owner builder loans is where the borrower themselves will be responsible for the execution and construction of the project. There are also some loans that are used for rebuilding or renovating already existing property known as remodel construction loans. If you want to get approved on a loan with the best terms that are appropriate for your financial situation, pre-qualifying for the construction loan is very important. The advantage of having pre-qualification is knowing about the cost of the funding for construction that will be referred to loans. Through the process of pre-qualification, how much income and the credit score of the borrower will be determined in order to know how much will be the cost of construction, interest rate for it, schedule of payment and other terms.
Loan types can have different alternative options. You can have them at fixed or variable rates as well. During qualification, the rates can become locked. Depending on the project, there can be loans for six-months, a year and even up to two years in projects depending mostly on the scale of the development. The time when the borrower will repay them depends on the their credit score and history. Although these loans may seem short, they can be converted to mortgages once the construction of the property is finished. After conversion, these loans can be repaid at installments along with interests.