Looking to buy a new house, but don’t have enough for the 20% down payment? The answer is in construction loans. Construction loans or ‘condo loans’ provide the perfect opportunity for you to make that move when you otherwise couldn’t. Let’s take a closer look at what construction loans are and what advantages they offer.
There are two types of construction mortgages; Construction-to-Perm and Interest Only. In a Construction-to-perm mortgage, your monthly payments include your principal along with interest charges. These payments can change significantly once the project has been completed because your principal will increase as well as your interest rate. This is why it is important to always be aware of how money is being spent on a project. Construction-to-perm mortgages are offered by banks, credit unions, and Mortgage broker Melbourne companies.
In contrast, Interest Only Construction mortgages mean interest-only payments for the duration of the construction phase. This means that you won’t be paying any principal so your regular payment will remain low during this period. After some time has passed and the project is complete you will then begin to pay monthly installments including your principal as well as the previous loan’s accrued interest charges. Since even more money must now be paid towards interest charges due to their accumulated nature these types of loans often come with higher rates than Construction-to-perm mortgages do.
What is a Construction Mortgage?
A “Construction” Mortgage is an interim financing product that allows homebuyers to finance the purchase of a home while it is being built. Construction mortgages are designed for those who cannot afford a substantial down payment on the closing date, but who have enough income and assets to qualify for a regular mortgage when the home is complete. Construction loans are typically issued by specialized construction lenders, financial institutions that specialize in financing homes under construction or already built.
Know what to ask your Construction Loan Broker before getting started:
When do I need a Construction loan?
Construction loans can be used to finance construction on a new build, additions, or renovations Construction loan rates vary by Construction phase (see chart below) Construction financing is available during each Construction phase but rate premiums increase as Construction draws near Construction Loan Brokers can help you find the right Construction financing for your unique construction project
How much money do I need for a down payment?
For most first-time home buyers, the minimum conventional down payment required is 3% of the purchase price. FHA guidelines are slightly more flexible and accept up to 10% of the purchase price. Some lenders may require higher down payments depending on borrower credit scores and other factors such as past mortgage history
What will my monthly payments look like?
The length of time that you pay Construction Loans depends on Construction loan terms. Construction Loan terms may last anywhere from 6 months to 3 years depending on your Construction Loan term, Construction financing amount, and Construction Loan interest rates Construction Finance Rates are higher than those of a conventional Mortgage Learn about the Construction loan types available from your Construction mortgage lender
What is construction contingency?
A Construction Contingency is an agreement between the buyer and seller stating that if upon completion of a home inspection, the property isn’t in a livable condition, then either party can terminate the transaction without penalty. Under Federal Housing Administration guidelines, buyers cannot assume ownership until all defects that could endanger health or safety have been corrected by their builder.
Construction loan brokers can help you understand more about Construction loans and how they work so that you can make an informed decision when it comes time to move. For further Construction loan information contact your local Construction Loan Broker today!