Construction loans offer short-term financing that covers the costs of building your new home. While there are different types of construction loans, the construction-to-permanent loan is streamlined and convenient for borrowers. In the following, we’ll give you the construction loans 101 so you can prepare to build the house of your dreams.
A construction-to-permanent loan has several benefits to the borrower.
An advantage of the construction-to-permanent loan is simplicity and convenience. Under a traditional construction-only loan, you’d end up applying for financing twice: once before building begins, and then again to secure a mortgage to pay off the construction debt.
However, with a construction-to-permanent loan package, you have just one closing date to worry about — not to mention one set of closing costs. And frankly, that’s pretty nice. And you can feel good knowing your mortgage is settled and ready to activate.
Having the ability to pay interest only while the house is being built helps make new construction financially feasible for many. But one advantage in the streamlined construction-to-permanent loan is the fixed interest rate. Traditional construction-only loans have variable interest that is tied to the prime rate. Having the construction-to-permanent loan makes it far easier to plan your expenses. (In a time when you may need extra capital for the house, this is a bonus.)
As your dream house takes shape, here’s a quick outline on how construction loans work.
Confirm that your builder is licensed, bonded and experienced. Before making a final choice, meet with multiple builders, look at examples of their past projects and check their testimonies and credentials. You’ll want every assurance your builder performs high-quality work on a reasonable timeline.
Before you choose your final model and sign the contract, get pre-approved. (Even if it's not required, it will show the builder you have serious intentions.) Aim for 60-90 days before your ideal closing date for the construction loan. This will help you finalize just how much home you can afford. Before you visit, run our calculator to get a ballpark.
Visit here for tips on getting your financial house in order before applying for a mortgage.
Compared to the mortgage lending process, a construction loan often requires a deeper level of detail. Your lender will provide a list, but here are some things you can expect.
Minnwest Bank is there to help you achieve your dreams. Our community banking approach is designed to make construction loans easier and more streamlined for borrowers like you.
Learn more about our mortgage program and reach out to a mortgage banker in your community today. All applications are subject to credit approval.