Construction Loan: Let Nothing Get In Your way while Building the House of Your Dreams!   by Marsha Claire

Construction Loans can be applied for either before or during construction of your property. Whenever in need of additional funds, you will be required to assess the situation and accordingly apply for it. Your architect is obviously the best person who can tell you the exact amount required for construction to kick-off. Here, you must involve every tiny amount - the mason, electrician, plumber, landscaper, excavator, painter, etc. and costs like laying of the foundation, painting, necessities like cement, bricks, wood, etc. All these small amounts are what total to make that 'big' sum. You then apply for this amount with required proof of course. An appraiser is also called in to verify whether your application amount is justified. A borrower applies for a Construction Loan no doubt, but the dealings or the actual headache is that of the architect and the lending party. The lending party directly finances the builder from time to time, as and when a purchase has to be made. These instalments are termed as 'draws' and each draw has a processing fee attached. So more the draws, higher is your total cost.

Repayment may seem difficult after reading through this article, however, to make things easier, the repayment plan isn't as bad as it seems. As long as your home is still being constructed, you need to repay only the interest on the total loan amount. The principal amount has to be repaid in a single lump sum or the Construction Loan is then converted into a regular mortgage. The latter is usually the preferred choice. All Construction Loans, however make it imperative for the borrower to make a down payment of 10% of the amount.

Borrowing is the easy part, while repaying is always the main issue. However, in this case, loan approval too is very uncertain because of the underlying risk. Lenders therefore, take their time in approving these loans. They verify your amount, credit history, employment details, total incomes, etc to gauge whether you will be in a position to repay the entire amount or not. Construction Loans also require collateral of significantly high-value. You also need to own the land before construction begins. No lender wants to chase you through the legal system to get his money, he therefore gauges the situation in advance and only then approves your loan. Lenders also take advantage of the situation you've created and charge relatively high interest rates and stringent terms and conditions.

Everything seems fine, but to exploit the best opportunities available, you need to do your homework. Research banks and other financial institutions and select a Construction Loan package that best fits your pocket and also one that can lend you the largest amount to prevent derailment of construction arising out of unforeseen costs. Make sure you have everything you need - money for down payment, required documents for proof, collateral, etc. Build your home and your dream ... all it takes is a little bit of exploration!
 

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