Building a new home from scratch can be stressful, mainly due to the high capital required to finance the project. If you cannot finance the construction project from out-of-pocket money, you can secure construction loans. The article will walk you through the ins and outs of construction loans.
Definition of Construction Loans
A construction loan is a short-term loan offered by banks to help you construct your home. These loans can be used to finance labor, material, or purchase land.
How Does Construction Loans Work?
As a client, you get to receive construction loans from a lender. However, you receive the money in installments as the construction project progresses. Also, you are expected to repay the funds with additional interest. You should note that interest rates may change within the repayment period. It is, therefore, crucial to discuss interest rates with the lender as they vary.
It is worth noting that construction loans are repaid after a short period. Some banks require you to make the repayment within one or two years. As a client, you need to know that lenders send inspectors to visit the site and assess the construction project’s progress. This way, you can get the disbursement of money in various stages.
Application Process
Some people assume that anyone who wants to undertake a construction project can secure this type of loan. This is far from the truth as you have to undergo vetting by the lender. For starters, you must show your source of income and employer details. You have to prove that your credit score is more than 720 and the details of the construction manager.
It is crucial to note that qualifying for a mortgage loan is easy to secure than construction loans. Therefore, you need to keep your options open and reach out to Spearing Capital and Consulting company experts.