Building Better Financing: Everything You Need to Know About Construction Loans
Premier’s construction loans help bridge the gap in the home-construction process. We’ll help you build from a solid financial foundation.
They say that home is where the heart is, but what if you could build your own dream home from scratch? The thought of creating a living space that is uniquely yours can be thrilling, but building a home is a major undertaking. From choosing the perfect location to designing your ideal living space, there are countless decisions to be made. But perhaps the biggest hurdle of all is financing your build. Luckily, construction loans are designed to help you navigate this complex process.
Tip:
It’s never too early to begin the loan process. Start working with a lender 3 to 6 months before breaking ground. Let’s build your dream together!
How-To Bank Video: Construction Loans
What is a Construction Loan?
A construction loan is a short-term loan that is used to finance a home build from the ground up. Unlike a traditional mortgage loan, which is typically paid out over several decades, a construction loan is designed to be repaid within a year or two. The funds are typically released in phases or draws as the construction progresses, and the borrower is only charged interest on the funds that have been released. Once construction is complete, the borrower can either refinance with a traditional mortgage or pay off the loan in full.
How Does a Construction Loan Work?
The first step in securing a construction loan is getting pre-approved. This involves providing your lender with detailed plans and a cost estimate for your build. Once you're approved, the lender will disburse funds in phases as the construction progresses. These draws typically occur once the foundation is poured, when the framing is complete, when the roof is installed, and when the final finishes are completed. Since the lender is taking a risk by lending money on a property that doesn't yet exist, the interest rates on construction loans are typically higher than on traditional mortgages.
Protecting Your Investment During Construction
Since construction involves a lot of moving parts and potential setbacks, it's important to protect your investment. One way to do this is through a construction inspection/evaluation. An inspector will visit the site at various phases and assess the quality of the construction. This can help ensure that the work is being done properly and up to code. Another way to protect your investment is through a construction contingency fund. This is a reserve of funds that can be drawn on in case unexpected expenses arise during the build.
Choosing the Right Lender
When it comes to construction loans, not all lenders are created equal. Some banks may not offer construction loans at all, while others may have complex application processes or high-interest rates. As a bank customer, you have the advantage of working with a lender you already have a relationship with. A bank that knows you and your financial situation can help guide you through the process and offer competitive interest rates. It's important to do your research and choose a lender who is experienced in construction loans and can offer the right financing option to meet your needs.
Building a home is an exciting and worthwhile investment, but it can also be complex and expensive. Construction loans offer a solution that can help make the process more manageable. By understanding how construction loans work, protecting your investment, and choosing the right lender, you can build the home of your dreams without breaking the bank. At our bank, we're committed to helping our customers make their dreams a reality. Visit us today to learn how we can help you build a better future.