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What is a Construction Loan?

In some instances home builders will request that parties seeking to build a home take out a construction loan. But what exactly is that? The Corpus Christi movers aim to help educate you on some of the lending options out there, and which options have the buyer’s interest in mind. Many times, a construction loan is not one that benefits the buyer. Read on to learn why.

It's the type of loan that is most convenient for the builder -- but not always for the buyer. You would finance the cost to construct the house rather than buying a house that's already been constructed by the builder. These are often called "story loans" because your lender will want to get a very thorough construction-plan narrative and timeline before it will approve funding. If the builder is truly confident in his work and what he has planned, then you should ask him to take on the burden of the construction loan to ensure that the home is built in a timely manner and to your liking. He has more at stake and more incentive to do the job right.

Either way, make sure your builder checks out. Ask for references, check with the attorney general's office, obtain a credit report, and check for lawsuits and outstanding liens. See if you can find past customers as references and browse old building permits with your builder to see how those projects fared.

So what if the builder will not agree to take on the loan?

You decide to take on the loan yourself. Here is how that process will work:

Funds will be dispersed in stages

Interest payments will be made during construction

Upon completion, the mortgage loan will kick in

As a buyer, you want the place to be livable and exit the construction-loan phase as soon as possible, especially because the interest on the construction loan is generally higher than on a typical mortgage. Unused overages will be credited back once the house is complete, and outstanding shortages are added to the loan balance. Keep in mind that anything not included in the initial contract will be an extra charge for you to take on.

So where is the real downfall of a construction loan? All too often, construction projects take longer than initially predicted. New home construction also typically comes out over budget. Play it smart on your new Corpus Christi home and negotiate to your advantage. Also, show up on site to keep the process rolling and on time.