Loans for residential construction are wonderful for people who want to have the money to construct their own property. In comparison to mortgages, loans are different and have specific considerations that must be scrutinized first before applying. To compare them with mortgages, this is less likely offered and should have proper preparation before application.
Residential construction loans refer to loans made for the construction of a new property. These loans are specific for residential areas and is different from other classifications. The difference in classification is important because there are other categories in loans including those that can be given for industrial or for commercial loans. The type of loan that will be granted to the borrower will depend on the type of property that will be built.
That is why residential loans have certain aspects and conditions for repayment that will be considered when analyzing the 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. There are a number of types for residential construction loans Loans can be classified into custom contractor loan or owner builder loan depending on the one who holds responsibility for the construction of the project. Custom contractor loans is where the constructor or construction company will be the one responsible for the termination. While owner builder loans are where the owner is the one responsible for the construction and execution of the project. There is also loans for making additions to an already existing property known as remodel construction loans. Pre-qualifying is a system where you can get approved for a loan ahead of time allowing you to get the best terms that are appropriate to your current financial situation. One advantage of having pre-qualification is knowing more information about the cost that will be incurred for the construction. Through the pre-qualification process, determination of the capacity for income and credit rating will be known in order to establish how much will be the cost, the interest rate, payment schedule and the miscellaneous terms.
In types of loans, there can be different ways and options. One can get them in a fixed rate or a variable rate. The rates become locked during qualification. Loans can be given in half a year, 1 year and two years depending on the scale of development. For the time frame of repayment, this will all depend on the history and the borrower’s credit rating. Although the loan may appear to be short, in actuality they will be converted to mortgages after the construction is completed. Once converted they can then be paid at installments plus the interest.