| Construction loans are different from a traditional | | | | Example of this would be if your construction loan |
| mortgage loans in a number of ways, but there are | | | | interest rate may be 8.7% for 12 months, and then |
| also similar terms and such ways that can help you | | | | convert into a 30-year conventional mortgage at |
| understand what is involved in the whole process. | | | | 6.5% interest for your end loan. The higher interest |
| Like some standard mortgage loans for an existing | | | | rate on the construction side of the loan reflects the |
| home, you will need to complete an application | | | | higher risk the bank is taking, because the house is |
| document so the bank can determine how much | | | | not yet finished. Occasionally banks offer ARM or |
| money you can borrow for land, materials, labor and | | | | adjustable mortgages, that will extend across the |
| other related expenses that will surely come up. The | | | | construction loan. |
| bank will qualify you for the final mortgage, and at | | | | Interest rate is just one part of borrowing money |
| the same time will determine if you qualify for | | | | from banks. Although banks charge you for |
| construction loan financing or another type of loan. | | | | processing fees. These fees can be set up in many |
| The bank will determine what kind of construction | | | | different ways. One way to understand this is by |
| loan you qualify for based on several items, such as | | | | reviewing the APR, or annual percentage rate. This |
| your debt to income, down payment your applying, | | | | amount is always higher than the interest rate at |
| cash on hand, your home equity and credit scores. | | | | which you are borrowing money, because it figured in |
| Banks will get this information from the major credit | | | | your effective interest rate over the life of the loan, |
| bureaus, including Trans Union and Experian. Those | | | | taking into account other fees you paid for the loan. |
| scores range from the 710-820's for the best | | | | When making these important decisions it's very |
| borrowers, the mid 600's for average borrowers, and | | | | important to understand what's included in your loan |
| into the 500's for those with a credit history not | | | | and the fees involved. Once you obtain your |
| great, but may still qualify. They will also consider the | | | | construction loan and begin building your dream home, |
| amount of money you have for a down payment. | | | | you will need to manage the loan the bank has |
| When you are looking for a construction loan, you will | | | | provided for you. The bank will also provide additional |
| come up with an interest rate for the loan you use | | | | funds at the end for land and any additional material |
| to build your home, and an interest rate for the final | | | | and labor expenses that might come up. |
| mortgage. | | | | |