Sometimes trying to find the right building construction
loan can be somewhat like walking a tightrope in terms of
finding the one that is most suitable and will meet all your
needs. Below we will take a closer look at the various types
of building construction loans that are currently available.
1. Bridging Loans
These are just a short term loan which is designed to span
the gap between when a person is building a new home and
when they are selling the old. This particular loan provides
them with the financing that they need so construction on
their new home can begin. Often with this type of loan the
financial institute will charge the borrower a slightly
higher rate of interest as well as charging them processing
and administrative fees as well. Such loans often only last
for about 6 months or less. But you should only consider
such a loan if you are capable of not only paying this loan
but also the mortgage on your old home and the mortgage on
your new one as well.
2. Construction Loans
This provides the borrower with the finances they need in
order to construction their new home. In most cases when a
person is having their own home built the financial
institute will require them to take out this type of loan
rather than a traditional mortgage. Then this loan will be
integrated into a mortgage once the construction of the
house has been completed. The great thing about this
particular type of loan is the financial institute will not
charge any additional fees. However rather than you having
control over the money the financial institute does and will
then provide the builder with "draws" from them as certain
phases of the construction work is completed. They will then
receive the final draw from the financial institute once the
construction work has been completed. Generally the number
of draws that occur will depend on the financial institute
where you have this particular building construction loan
with and just how much money you have yourself put up for
the construction to be carried out. You will however find
that you will need to factor in a cost for the fees that are
paid as every draw is made by the bank to the builder.
Certainly these are the more common of building construction
loans that are used when building a new home. However some
financial institutes may decide to use a more conventional
mortgage in order to provide you with the funds that you
require.
