Your real estate project will be better managed and be more likely to be a success if you have enough financial backing, which you can achieve through a construction mortgage. When you are looking to build instead of buy your new home, a construction mortgage can help you take care of the heavy building expenses and make building your new home a breeze.
Hard money financing, which is offered by these construction mortgages, can be used to oversee both residential and commercial projects. The construction loan is borrowed to finance the building of your property, with only the interest charged during the construction duration. After this it turns into a regular mortgage in terms of repayments.
Should you take a mortgage when building? Here’s how that could be beneficial for you.
Only interests due during construction
Most lenders offer their borrowers the chance to pay interest on the amount taken out. They will not require that a borrower make capital repayments within the duration of the construction period. This will go a long way to ensuring a large resource pool for building your project without any hassle over repayments. It guarantees that your home will be complete before you need to start paying for it.
Higher approval rate
Getting any type of mortgage is somewhat difficult. Lenders will look into your credit rating and other metrics to determine the viability of your application and your ability to make repayments on your loan. While there are some restrictions imposed on construction loans, they are far easier to get than bank loans. This is why construction mortgages are more popular with real estate agencies than loans from big lenders.
More flexible terms
You can tailor the loans from a hard money lender to meet the specifications of your construction project. This will allow you freedom with your loan, which mortgages do not usually provide. It is even a better option than a regular bank loan because construction loan lenders will allow you a friendlier repayment term that is more tailored to meet your ability.
Construction loans, particularly from hard money lenders, can be a great way to finance your construction project. They are flexible, easier to get and can be tailored to be friendly to your financial arrangement. Construction mortgages offer a construction-to-permanent loan, with the loan becoming a friendly mortgage repayment after construction. These loans are great short term options to help you overcome any shortfalls in your project financing. For added benefit, most lenders will only require interest repayments during the construction period.
However, these loans may attract a higher interest rate than regular loans. Construction can be a riskier investment than buying a property outright, and any loans set out to offset construction costs will usually attract high rates. You will not receive your construction mortgage as a lump sum payment. The incrementally advanced payments may hinder your project plan, with certain necessary parties having to wait for loan clearance and injection of funds.
Deil D Pecci is a writer and blogger based in Chicago who covers topics on personal finance and entrepreneurship. Deil D Pecci has made Chicago her home along with his wife and children.