Construction Home Loan

A construction home loan is quite different than a permanent mortgage loan assumed by a homeowner. Construction home loans are notes assumed by homeowners who are planning to build a new house and need funds to get the project under way. Since these notes are 'story' loans, that is, the lender must know the plans or story of the building project, these primary home loans are only for a certain period of time and only charge interest. Usually this agreement is among the prospective homeowner, contractor and lender as to time frame of building and line of credit.

Since this type of contract is many times used as a 'line of credit' in that when the contractor purchases materials, pays sub contractors for work and pays himself for oversight, the moneys for these services are drawn from the building account. A construction home loan account is set up by the lender, allowing the building costs to be withdrawn. During the time of project progression, only interest is paid on on these contracts. It is important that an accurate assessment of building time is factored into the amount and time allowed for the funding agreement.

It is best to factor in a longer time period than is initially projected, because homebuilding can be an inaccurate business as far as time of completion. Upon completion of a house, the construction home loan will require payment in full. A certificate of occupancy is required in order to show completion of the project for most construction home loans. Many consumers choose an agreement that has the option to convert to a permanent mortgage program when certificate of occupancy is shown. This is usually a good option for homeowners because there is no more approval processes to go through after initial approval for the lending agreement.

The borrower may also get a better interest rate lock on the contract, but Construction home loans may require rates a bit higher if the borrower chooses a construction to permanent mortgage. The headaches are fewer with a construction to permanent converted note and the borrower is paying on the house from the initial building stages rather than just paying on interest. There are many options for homeowners today who are looking for affordable and functional notes. Interest rates are exceptionally low and now is a good time to lock into reasonable construction home loan rates. "Bless the Lord, O my soul: and all that is within me, bless his holy name." (Psalms 103:1)

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