When you are thinking about building your own home one of the biggest constraints that hold people back is having the financial capability to do it. That is where a construction loan comes into play. This type of loan is directly intended to finance the construction of a house without having to jump through a lot of repeated hurdles. There are a lot of advantages to this loan type so here is a closer look.
Only pay interest during the time of construction
One of the big advantages of this type of loan is that you only pay interest when the house is actually being built until it is completed. You then pay the loan off completely when the house is finished and you have taken occupancy. How much interest you pay during the construction depends on the loan rate you got from your lender. At different stages of the construction, there may be different rates to pay. How much you can get for your loan depends on a number of factors such as what equity the land has where the house is being built. Different lenders will offer different loan amounts.
A construction loan is short-term
Another good thing about this loan is that it is short-term only. When your construction is complete and you have the occupancy certificate and can move in then you pay the construction loan off. In most cases, since construction lasts for 6 to 12 months this is the length of the loan. Thankfully you do not pay off the loan in installments as with other loan types, in the middle of a home build, that can be a hard thing to manage. All you do is take the money and pay the interest and then pay the loan at the end of the build.
A good loan option even if you have average or bad credit
Another good thing about a construction loan is that even if you have less than perfect credit history or perhaps you even have a bad credit score, you can still take out this loan and not be hit with much higher interest rates. In fact, with each stage of the construction completion, the interest rate can change and even go down, but it is not due to your credit history it is the nature of the type of loan.
Refinance home loan
Another type of loan you might be interested in is the refinance home loan. It means you pay off the loan or mortgage you have currently and then take out a new loan. There are a number of reasons why a person might choose to take out this loan. It is a way to take advantage of interest rates that are lower than when you took your original loan. You can use this method to shorten the length of your mortgage. You can do this to move from an adjustable rate mortgage to a fixed rate mortgage or from an FRM to an ARM. It is also a way you can tap into funds to handle another situation, a large purchase, to consolidate debt or even a financial emergency.