Construction Loan Information
by Asokan from 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. I would appreciate your reply. Thank you, Asokan
Kate Answers: Pros and Cons of Construction Loan Information
You're in luck because I already have information 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 generally 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.
Details to Compare in Construction Loan Financing
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.
Find out if you can you get a 30 year fixed rate mortgage
on either program.
I have also included links to pages on my website about forming a dream team whether you are buying or building a house. My home buying articles will give you an insider's view you won't find anywhere else!
Good luck and best wishes,
Learn More About Your Dream Team
How to Buy a House Part 1 Meet your real estate agent and save yourself heartache and headache.
How to Buy a House Part 2 Meet your mortgage lender - Expect more than quoting the lowest rate or taking an application.
Check out List of Mortgage Companies, a local lender directory.
How to Get a Mortgage Part 3 Meet your home inspector and avoid buying a money pit.
How to Get a Mortgage Part 4 Meet your real estate appraiser - Does an appraisal assures you of a good deal?
How to Get a Mortgage Part 5 Meet your title insurance companies for coverage resulting in peace of mind.
How to Get a Mortgage Part 6 Meet your homeowners insurance agent because there is more to it than the cheapest quote.
How to Get a Mortgage Part 7 Meet your escrow and closing disclosure form, the guardian of your real estate transactions.
Title, Abstract Services and Escrow Agents, a mortgage service provider directory.
How to Buy a House Questions and Answers II.
How to Buy a House Questions and Answers I.
Return from Construction Loan Information to Get Your Best Mortgage Rate
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