Home Construction Mortgages
Building a home is much different than purchasing a pre-existing home when it comes to financing options and requirements. More lenders than ever are making available to their customers home construction loans which provide many of the same benefits enjoyed by traditional home buyers and previously unheard of when building a home from stock home plans purchased by the home owner.
Unlike a traditional FRM or ARM mortgage, a home construction loan is more like a line of credit than it is a loan. Perhaps this is because it is necessary, when building from home design plans, to be prepared to face any sort of situation that might arise during the construction process. Disbursements to contractors, subcontractors and material suppliers need to be made at different times, the first payment being to the stock home plan design company where the plans for the home were purchased.
Basically, the home builder is extended a total number which is the upper limit for their line of credit. Then, the home builder can arrange for payments to be made during the process of constructing their home from the purchased home plans. This allows both the freedom and accessibility of funds.
Unlike a traditional mortgage, the closing generally happens upon completion of the home construction project. This enables the lender to have an exact loan amount for the home plan construction project prior to issuing a promissory note to the home owner.
Also, this benefits the new home builder because they are not required to make full payments monthly where their purchased home plans are becoming a reality. There may be loan fees they need to pay, however until the closing there are no payments generally.
Once the construction is complete on the home, and the closing occurs the construction mortgage is changed into a regular mortgage. This is generally either a 15 year fixed rate or 30 year adjustable rate mortgage. At that point of conversion, the homeowner can proudly live in the home they helped create from a set of home plans while knowing that their loan amount is set and their payments are made on a monthly basis.
You may have noticed that there is the option to receive multiple disbursements during the construction of the home, but there is a single closing. This can be a great benefit of a construction loan, as there is only one set of closing costs similar to a traditional borrowing structure. It can literally save the home owner thousands of dollars over the course of home plan construction.
Also, interest only accrued on money that has been disbursed from the home construction loan. This can be a great savings, because often time the most expensive payments to the general contractor are not due for payment until completion at the end of the building project.
It is a great service when a lender is willing to offer construction mortgages for those who find the perfect set of stock home plans from which to build their dream home. There are competitive rates and programs, so keep looking until you find the best program for your needs.
This home building article by:
Michelle McClory with AmazingPlans.com