Types Of Building Construction Loans

Sometimes trying to find the right building construction loan can be somewhat like walking a tightrope in terms of finding the one that is most suitable and will meet all your needs. Below we will take a closer look at the various types of building construction loans that are currently available.

1. Bridging Loans

These are just a short term loan which is designed to span the gap between when a person is building a new home and when they are selling the old. This particular loan provides them with the financing that they need so construction on their new home can begin. Often with this type of loan the financial institute will charge the borrower a slightly higher rate of interest as well as charging them processing and administrative fees as well. Such loans often only last for about 6 months or less. But you should only consider such a loan if you are capable of not only paying this loan but also the mortgage on your old home and the mortgage on your new one as well.

3. Construction Loans

This provides the borrower with the finances they need in order to construction their new home. In most cases when a person is having their own home built the financial institute will require them to take out this type of loan rather than a traditional mortgage. Then this loan will be integrated into a mortgage once the construction of the house has been completed. The great thing about this particular type of loan is the financial institute will not charge any additional fees. However rather than you having control over the money the financial institute does and will then provide the builder with "draws" from them as certain phases of the construction work is completed. They will then receive the final draw from the financial institute once the construction work has been completed. Generally the number of draws that occur will depend on the financial institute where you have this particular building construction loan with and just how much money you have yourself put up for the construction to be carried out. You will however find that you will need to factor in a cost for the fees that are paid as every draw is made by the bank to the builder.

Certainly these are the more common of building construction loans that are used when building a new home. However some financial institutes may decide to use a more conventional mortgage in order to provide you with the funds that you require.

Construction Costs