If you are looking to remodel your home, you will probably need a construction loan. Or perhaps you are building a new home and plan to apply for one of these loans. Whether you are doing a home remodel or building from scratch, there are a few things you need to know about construction loans.
A Federal Housing Administration (FHA) construction loan permits you to fund both small and large improvements to a present home or the construction of newly built houses. Just like a standard FHA mortgage, these building loans are supported by the government. Thus, you can generally qualify for these loans with a lower credit score than you’d need when requesting a conventional, short-lived building loan.
In order to take out one of these loans, there are specific requirements you must meet. There is also a good chance you will need to meet with a loan consultant to be certain the construction loan guidelines are met with the home remodel or newly built home plans.
Do not confuse this type of construction loan with a mortgage. A mortgage loan is used for purchasing a home that already exists. With the FHA loan, you are either building from the ground up or doing a home remodel.
There are two kinds of FHA construction loans, one for new homes and one for home remodels.
An FHA construction-to-permanent loan will provide money for the cost of buying the land and building the home. When the home construction has been completed, your lender switches the construction loan over to a permanent loan. This will be paid off like a mortgage loan by paying monthly payments with interest until the loan’s principal balance is paid off.
The closing process will only be gone through once on an FHA construction-to-permanent loan. This is a huge pro because closing costs can be very expensive. They generally run anywhere from 2% – 6% of the total amount of money you are borrowing.
An FHA construction-to-permanent loan begins as a short-term construction loan. Per FHA rules, the lender must authorize the builder you have picked to construct your home. Then your lender will outline a draw timetable for the loan based on the approximate construction procedure. With each draw, your builder will be paid so that fabrication on your home can proceed.
When the home’s construction is completed, the lender will change the short-term construction loan to a permanent mortgage. This will generally have a term lasting 15 to 30 years. You will make regular monthly payments until the mortgage loan is paid in full.
If you are interested in either a home remodel or will build a new home, contact Hybrid Construction LLC in Tampa, FL, today. They can discuss with you the home of your dreams and make it happen.