Construction Loans

Q I Am Going To Build A House. Can You Tell Me About Construction Loans?
AConstruction loans are interim or short-term loans. Usually money is set aside in a special account for the borrower, who may be a builder, a developer, a future homeowner or a homeowner who wants to build a new home. Here's how a construction loan works. 1. Any equity in the build-upon lot may be applied toward the down payment. 2. The borrower draws money out in installments as needed and as construction progresses. 3. Interest payments depend on the amount of funds disbursed each month. 4. The entire loan must be paid back within 12 months. 5. When construction wraps, the borrower must obtain permanent financing (also referred to as "take-out," "permanent" or "construction-permanent" loans). The best sources for construction loan financing include the following. 1. Commercial banks 2. Insurance companies 3. Pension funds 4. Private investors