Real Estate
Understanding What Goes Into A Construction Mortgage
November 17, 2009 by Adriana Noton · Leave a Comment
Understanding what goes into a construction mortgage will be extremely important if they are comes a time that one is going to have a home built from the ground up and on land that is either bought or already owned. This type of mortgage can come in really handy when financing such construction and land purchases as may be necessary, there are a number of steps and features that should be examined.
First of all, most traditional mortgages of this type are short-term in nature, usually lasting no more than three years. A mortgage of this type is nothing more than real estate financing, and the construction will be secured by a mortgage that is taken out on the home and property being financed. It’s set up to cover various costs involved in land development and building construction.
A loan or mortgage of this type can also be a smart way to renovate a home prior to moving in and occupying it. For those who are relatively light on cash and don’t have much to apply to renovation or construction, this is especially well working mortgage. It has been structured to enable borrowers to get their hands on a significant amount of the cash needed for such a project ahead of time.
Much better rates are available on these mortgages in the case where a person has need of a relatively small amount of funding in order to engage in improvements to a home prior to obtaining a certificate of occupancy from the local municipality, also. There are several different variations of this kind of mortgage, with a common one known as “construction to permanent loan” financing.
This particular kind of construction loan or mortgage is a good financing instrument to take advantage of in order to avoid the issue of paying double closing costs or double the amount of fees when one obtains a separate construction loan and then an additional permanent mortgage once construction has been completed. Also, permanent interest rates can be locked in at the beginning of the construction.
This last feature is particularly noteworthy because is the case in many instances that the interest rate that is obtained at the beginning of construction or renovation can be lower than the interest rate that will be instituted when the loan becomes a permanent mortgage. There have been many people taking advantage of more traditional construction mortgages that have been confronted with this at closing.
Try to keep in mind that when dealing with a mortgage of this type it is an excellent idea to sit down with the lender and the building contractor and come to a formal agreement as to payment schedules involved in the construction. For the most part, alone of this type is paid out in separate stages as the construction moves along. Therefore, come to solid understanding of payment due dates.
In almost every case, it makes financial sense to keep all mortgage activity with the same lender. In other words, try to avoid taking out a loan for construction from one lender and then a separate long-term mortgage from another lender because each will charge you fees that can add up to a significant amount. A construction mortgage makes for an excellent way to get a home built from scratch.
When you’re deciding to buy a house, some of the factors that you have to take into account are mortgage rates. As mortgage rate is important for home-buyers, GIC rate is important for investors. If you’re interested in a customized financial plan, remember to visit us.
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