What are residential construction loans?
Residential construction loans are a type of loan that is designed to help you finance the construction of a new home. When you take out a residential construction loan, the bank will issue the funds over the course of the build (called progress payments). For each stage the builder completes the bank will release a portion of the loan to them. Once construction is complete, the loan will be repaid over a period of time; typically between 15 and 30 years.
What are the pros and cons of this kind of loan?
There are both pros and cons to residential construction loans. Some of the pros include:
- You can finance the entire construction cost of your home.
- You can get a fixed-rate loan, meaning your monthly payments will stay the same for the life of the loan.
Some of the cons of residential construction loans include:
- The interest rates on residential construction loans can be higher than those on traditional home loans.
- You may have to put down a larger down payment than you would when buying an existing property.
How do I find the right residential construction loan?
If you are considering a residential construction loan, there are a few things you need to do to find the right one for you.
- Compare interest rates: The interest rate is one of the most crucial factor when choosing a loan. Make sure to compare interest rates from different lenders to find the lowest rate possible.
- Consider closing costs: Closing costs can vary depending on the lender, so make sure to factor these costs into your decision when choosing your lender.
- Choose a loan that fits your budget and situation : Make sure to choose a loan that is affordable and suited to your circumstances.
- Make sure you read and fully understand the terms and conditions: Before you sign any paperwork, make sure you fully understand the ins and outs of your loan contract to avoid any nasty surprises down the road.