Construction Loan Information

by Asokan
(Lawrence, Kansas, USA)

Ask Kate: Construction Loan Information - What are the pros and cons?
Hi Kate, Thank you for your valuable service to people like me, who have no knowledge about how the mortgage loan system works. We are seriously planning to build our new home.



When we talked to two different builders, they all recommend that, we should get the construction loan and that will be converted into mortgage loan. I thought the builder will get the loan, construct the home, will sell it to us.

Could you please, educate me the PROS and CONS of both the process. I would appreciate your comment/reply. Thank you, Asokan

Kate Answers: Construction Loan Information - What are the pros and cons?

Hi Asokan, You're in luck because I have construction loan information right here for you at Residential Construction Loans - Long Term and Permanent Financing Explained. This page explains the differences between short-term construction financing and All In One financing.

You asked about the pros and cons of the two types of mortgages. The biggest advantage to the builder obtaining the short-term construction financing is that the homeowner only has to originate a mortgage after the house is built. Because construction is complete, the mortgage will have a lower interest rate than an All In One construction loan. But the interest rate cannot be locked in until the house is near completion.

The advantage to an All In One is that one mortgage, not two, covers the construction period AND the permanent financing. This means the home owner can lock in the mortgage rate early on in the process. If the house is built during an especially volatile market, it is reassuring to know you don't have to wait six months before locking in.

To compare construction loan information and see which is best for you, I recommend that you ask your lender for two good faith estimates and loan disclosures. Compare interest rates and mortgage closing costs. Ask when your mortgage rate lock will be available. Can you get a 30 year fixed rate mortgage on either construction program?

I have also included links at the bottom of this page leading to pages on my website about buying a house and forming a dream team. My home buying articles will give you an insider's view you won't find anywhere else!

In addition, by visiting How To Buy A House, you'll discover solutions based on inquiries from other Contributors just like you.

If my construction loan information is giving you brain freeze, please accept my apology. Write back and tell me what's unclear and I'd be glad to clarify.

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Asokan, please come back and visit often. Help me spread the word by sharing my website with your friends. Remember, all of my information is free!

Best Wishes,

Your Online Mortgage Advice Friend

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