Real estate analysts say nearly a quarter of Americans are looking for new homes to build rather than buy. Financing a building project can be tricky, though, and requires a loan very different from a traditional mortgage. Let the Mortgage Experts at Marshland be your guide through all the ins and outs of a construction loan.
Typically, construction loans are meant to be short term and are then replaced by another more permanent loan after the house is built. There are two types of construction loans:
* Construction-to-permanent loan. You only pay interest during the construction phase. The lender then automatically converts the loan to a mortgage after the home is built, without a second set of closing costs.
*Construction-only loan. This requires separate loans for construction and mortgage. Only interest is paid during the building stage, and the entire principal is due at the end of the term. After construction, the borrower must reapply for the mortgage and pay another set of closing costs.