Things To Know About Construction Contract Financing

By Eula Clarke

Building loans are financial loans offered by most banks to allow their customers to pay for the building cost of their houses even when they do not have enough money to do that. There are two reasons that make you qualify to apply for this construction contract financing, the first one is if you are building a new house from the ground up and if you are expanding an already existing house.

This loan can exist as a two-step component. In this case, the first step is the actual money that you are supposed to use to fund your building. This money can be withdrawn by the house owner on a need basis depending on the different stages of construction on is in at the time. In this step, interest only payments are made to the lender of the loan once the building is completed. The entire balance becomes payable.

In the second step, the recipient is supposed to take another loan to settle the loan. This is done to ensure that the home owner can get the benefit of having to repay relatively less during the period of the building. This encourages them to pay up faster.

The other loan plan that is involved in these kinds of loan apart from the two step one is the no-interest loan. This plan allows the house owner to take up a loan from the financial institution, they start the building process, then once the entire construction is completed, the loan interest is calculated at that point and the customer can start making the payments.

The second type of plan is the best to choose. One advantage of this loan plan is that you only have to repay one closing fee. This is a fee that the bank charges you once you have completed paying up a loan. This covers for all the cost of processing your payments. If you take the two step plan, you will have to pay the closing fee for the construction loan and another closing fee for the permanent loan.

An advantage of choosing the no-interest loan when building is the issue of the interest that the bank will charge you. When using the two steps method, the bank charges you interest for both loans. This means that during the construction period, the interest is rising. In the other method, the interest only kicks in when you start repaying it. This means during the building period you will be free of interest.

One great advantage of construction funding is that you as the recipient of the loan will be able to have all the funds you need readily available during the entire building period. This means that builders payments and money for supplies will be there. The effect of this this availability of funds is that the building process will be quicker since there are no financial holdups.

Having this type of loan shows you that the financial institutions are willing to help you fund your building projects. With this in mind you should really consider this kind of funding when you are about to build or do a major renovation.

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