Building a house is an exciting opportunity that allows you to be in charge. But it can be expensive. At Telco Credit Union, we know how important it is to save money and consider your financial future. We’re here to help with your construction loan needs. Telco serves the Eastern North Carolina area, including Greenville, Tarboro, and Rocky Mount. You can trust Telco with all your financial needs, whether you’re looking to open a checking or savings account, take out a loan, finance your mortgage, or become a Telco member/owner.
What Is a Construction Loan?
A construction loan is a short-term loan that covers only the costs of custom home building. This is different from a mortgage, and it’s considered specialty financing. Once the home is built, the prospective occupant must apply for a mortgage to pay for the completed home. However, there are several other loans available when it comes to home building, from ground-up building to a complete remodel of the entire house. There’s likely a loan out there that’s right for you, whether you’re starting from scratch with a land loan or completely renovating a home.
This type of loan is short-term and is usually issued for a year. It’s meant to cover only the actual construction period. Like many lenders, Rocket MortgageⓇ doesn’t offer this type of loan. Why? With so many variables like the builder’s cooperation, getting approvals from local municipalities and more, these are considered higher-risk loans. This means they’re harder to qualify for, and the interest rate will likely be higher than a traditional loan. In addition, if you decide to go this route, you’ll have to pay a second set of loan fees when you apply for a traditional mortgage.
Construction-to-permanent loans are a financing option that prospective custom home builders can apply for. Like construction-only, construction-to-permanent financing are one-time loans that fund construction and then convert into a permanent mortgage. During the construction phase, borrowers make interest-only payments. These types of loans can be much more expensive than traditional mortgages, so if you decide to go in this direction, shop around, compare rates and find the best deal before you pull the trigger.
Renovation loans, also known as FHA 203(k) loans, can be used for home renovation and are insured by the Federal Housing Administration (FHA). This allows borrowers to both purchase and renovate their new home while still making one monthly payment to cover both costs.
Other options include a home equity loan or a home equity line of credit (HELOC). No matter what you want to change about your home, there are plenty of options to get the financing you need to start swinging that sledgehammer.
Usually when you build a home, there’s a general contractor who essentially acts as head of the whole operation. They make sure the framing people, the tile people, the wood floor people, the painters and so on all work in coordination to get your home completed (ideally on time and on budget). However, some prospective home builders wish to act as their own general contractor, and some banks offer owner-builder loans just for this purpose. These types of loans generally require the borrower to demonstrate through experience, education and licensing that they have the needed expertise to oversee the home’s construction.
An end loan is a traditional mortgage loan that a home buyer or home builder (if you’re building your own home) can apply for after the new home is constructed. You can get an end loan if construction is complete on the home. One good aspect of an end loan is that the mortgage application for a newly constructed home is the same as it is for any other home. Less complicated is always appreciated when it comes to financing applications.
Building your dream home is serious, and talking to an expert about it is the best way to make your choice. Let Telco Credit Union help you today with any and all of your loan needs. Contact us today!