Are you aiming to build a home from the ground up? To accomplish your goals, you’ll need a construction loan.
This short–term loan will cover the costs of land, materials, and labor. In other words, everything that goes into building your home.
Construction loans come in different types. Thus, the best loan will depend on your budget and building timetable. Plus, how you intend to use the house once it’s completed plays a role.
If you’re looking for the best loans, know the rates of new construction spec loans. Want to learn more about them? Read on to know the best loans here.
How Construction Loans Work
How it works is you first make a rough budget estimate for the entire project. Then you pay at least the lender’s least down payment.
During construction, you can draw down on the loan money in installments. Each “draw” compensates the builder for the work done. After the completion of the job, you can request a loan withdrawal.
The lender dispatches an inspector to inspect the work and grant the request. They will wire or deposit a part of the loan to your account.
SPEC Home Construction Builders Loans:
- Up to $12 million, 60-65 percent%
- Up to $8 million in LTC/LTV at 65-70%
- Up to $6 million, 75-80% LTC/LTV (which can be high with cross-collateral)
- Massive loans of $21 million are on a case-by-case basis
- Rates range from 6.25 to 6.75%
- No penalties for paying in advance
- Up to 30 months period of construction, with potential extensions
Several lenders stopped offering construction financing and closed their doors in recent years. It surprised many home construction loan consumers, but construction financing experts weren’t.
Construction Loan Types
There are different types of loans, and the same is for construction loans. Here are three types of loans:
A construction-to-permanent loan covers the construction costs as well as the finished home. It transforms into a fixed–rate, permanent mortgage loan at the end of construction.
A construction-only loan is a short–term loan. These loans are likable for being adjustable-rate loans. You can either pay it off or refinance it into a mortgage loan for long-term financing.
An owner-builder loan is for people who want to be the general contractor on their project. These loans are less expensive and have lower interest rates than the other two.
Check this out if you want construction loans for builders.
How to Get a Construction Loan
Getting a construction loan can be more challenging than getting a regular mortgage. Each lender has its own set of requirements and application process. Yet, you will need to supply thorough information about the following:
- Income and employer
- Down payment
- A builder or general contractor
- Construction budget
You’ll also need to get the property evaluated and examined. After the loan’s approval, the loan will close through a title firm, much like a mortgage loan.
Know These New Construction Spec Loans
Know these new construction spec loans before building your new home. Planning and preparation are crucial, but complications can still happen. However, having the right team on your construction project does make a difference.
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