![]() ![]() Each stage will have a different amount of funds disbursed to the contractor directly. Major inspections will include building the foundation, home framework, roofing, and lastly, finishing. Once the contractor receives the money, they can complete the part of the project that is meant to be completed using the allocated money.Ĭonstruction Loan House Construction Interest-only payments Construction Complete Loan paid back in full Loan is refinanced into a mortgage Construction Loans ProcessĪt each stage of a home building process, an inspection agent from the lender will analyze the progress and will release funds for the next step of the process. Whereas in construction loans there is no collateral backing the loan, the lender only provides portions of the loan to the contractor directly. In traditional mortgages, the borrower receives the funds and pays back the interest and principal in installments. Construction loans are structured differently than normal loans. Once the borrower gets approved for a construction loan, they can start working on the project. Once the borrower has all proper documentation and a licensed contractor, they may be able to apply for a construction loan. This means that the borrowers have to clearly plan out the whole construction project before applying for a loan. Since there is no collateral provided, the lenders require quite a bit of supporting documentation that outlines the nature of the construction, a clear budget, and a plan. One of the main differences between a construction loan and a conventional mortgage is that a construction loan does not have collateral backing it. Rates are for informational purposes only. ![]()
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