Professional Mortgage Solutions provides top notch service for construction loans in Rego Park, NY. In this week’s blog post, we dive into the details of using these loans for home renovation or new construction. Learn all about how the process of using these funds may differ from a regular home mortgage.
Construction Loans are Mortgages with a Twist
You can buy a home on the market without making many changes to its structure. However, for some, customization is key. Many people have their ideal home in mind. Finding it, on the other hand, can be elusive. You may decide building or renovating a home is the only way to succeed. Handling a construction loan requires you to get a mortgage with a lot of complicated processes to follow.
First, a construction loan is short-term, unlike many mortgages. It is used to cover the initial costs to pay contractors, materials, permits and other fees. Many construction loan funds will be disbursed to the contractors on the project, for this reason, instead of the borrower. Payments are made in installments based upon completion and review of construction project milestones.
Finding the Right Team for your Construction Loan Project
Working with a high-quality team that you trust is critical on a construction loan project. From the realtor, to the contractors, to the insurers, to the appraisers, to the lenders—you need to take time and research everything. Once the work is completed, it will be appraised, and your home value will be finalized and approved. If you end up with flawed and poor work quality, you could spend years and all your savings fixing the problems.
Different Types of Construction Loans
You need to understand the different types of construction loans and how they work before starting your project and selecting a lender. Here are some construction loan types and how they work:
- Construction to Permanent: These are also called “single close” construction loans. The loan converts to permanent once construction is done and rates are locked at closing. Some suggest this type if you have a simple construction plan and want to lock good rates.
- Construction Only: These are called “two close” construction loans. The loan must be repaid when work is done. You also must go through multiple approval and closing processes. Some suggest using this type if you have cash reserves and can afford to spend time searching for the right permanent lender.
- Renovation Construction: Refers to loans that fold the cost of renovations into the mortgage. The loan is based on the value of the home after renovations are done. Some suggest using this if you have a fixer-upper project with low available cash.
Professional Mortgage Solutions is here to help Rego Park, NY home buyers build their dream home with a construction loan, we look forward to working with your team!