An existing home loan will begin charging you interest on the total borrowed amount immediately. This is due to the home is already there and you get access to it right away. A new construction doesn’t have those advantages, meaning that the entire amount won’t be used in the charging of interest at first.
Money is disbursed as required and you have one year to complete the whole residential construction job. Interest is only charged on the money that’s disbursed during that time. Depending on how much of your income you’ll be able to prove via documentation, you might be able to fund up to 90% of the estimated future value of the home.
When the construction of the house is completed, the permanent loan starts with interest being charged on the complete loan amount. Now that you already know a great bit of the outline of how it is different from a typical home loan, it’s time to find out about how it all really works.
How it Works
You only have to close one time for the construction of your new home. The funding during the construction and the permanent loan that will kick in slightly later down the road is all done in one sitting. There’s only one set of loan documents, meaning that you don’t have to be worried about extra closing costs from extra signings.
You can also lock in your interest rate at that signing, all while having up to 12 months to complete the whole jobs. But how does one predict what the value of something is going to be before it is even built? The appraiser will ask to have information provided to him or her in regards to the following:
- The type of house that will be built.
- The materials that will be used.
- The price of all of the materials.
- The price of the work, or labor.
- What the land price and what the current value of it is now.
- How much money that will be spent on permits and planning.
Moreover, you may need to ensure that many attention is paid to who your choice of general contractor is and what the text, or terms, of the contract for the construction states. When you obtain it all determined, you would then be capable of proceed with the plans. While it can be a little complicated in the beginning, it really is not that hard to make it through.
Newly constructed homes are worth every minute of effort and time put into them though. Just ensure that you are using your time and getting all of the information straight and it will all be done with before you realize it.
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