Construction Loans Explained

When it comes to construction loans, there are two types of construction loans to consider. First off, there are construction to permanent construction loans. These loans are simple. You essentially borrow money to pay for the construction. When it’s complete, the lender will convert the loan balance into a permanent mortgage. Essentially, this type of loan is two birds with one stone. With a construction to permanent loan, there is only one closing. This will subsequently reduce the amount you pay for closing fees. During the construction phase you pay interest only on the outstanding balance. The lender will convert the construction loan into a permanent mortgage once the contractor has finished. Once this is done, you then have the option to choose the terms of your mortgage.

On the other hand, there are also stand-alone construction mortgages. These loans are a two package deal. The first portion of the loan covers the costs of construction. When you move in, you are then given a mortgage to pay off the construction debt separating it into two different loans. The stand alone construction loan will likely allow you to make a down payment, this loan can be incredibly beneficial. This can be an advantage for someone who plans on staying in their home until the construction has finished. Although, differently from construction-to-permanent loans, you will have to pay two separate closing fees.

Overall, both of these loans can be great options for differing individuals depending on your circumstances. Contact your loan officer today to discuss and learn more about these options!