Facts That You Need To Know About Construction Loans!

Posted by Shawn Molem on July 18th, 2017

Construction loans are becoming more popular than before and many people are choosing to build their new home or for investment property you can also build with help of Construction Loans, here are the details that you need to know about Construction Loans:

What is a Construction Loan?

Construction Loan is a short term, interim loan for financing the cost of constructing your new dream home. Lenders/credit providers will secure a mortgage over the real estate property you are financing and they will make periodic payments to your builder at periodic intervals as the work progresses.

How is a Construction Loan Funded?

Construction Loan Providers have different Loan policies and requirements that they adopt when processing a loan application. However, most are similar. Here is a list of how lenders fund construction loans:

1) Loan Providers will fund the loan amount required by you to cover the cost of purchasing a vacant land and for the building construction costs
2) Before construction starts and if you have already borrowed to purchase vacant land on which you are building your new dream home, the first loan disbursement made by the lender/credit provider will go towards paying off the vacant land
3) Loan Providers will break down the loan amount into “progress payment draw down” amounts, which are made to the builder at the completion of each construction stage

How is a Construction Loan Structured?

Construction loan, whilst it is similar to a traditional mortgage, has some key differences. Here is a list of the key features of a construction loan:

1) It is typically a short-term solution with a maximum of one year
2) The borrowers will be expected to pay Interest Only payments during the construction period
3) Interest is only calculated against the portion of the loan amount that has been drawn down
4) Construction must commence within 12 months of loan settlement
5) Construction of your new home must be completed within 12 months of the first progress drawdown payment

When are Progress Payments Drawn Down?

Construction Loan Provider will arrange to prepare valuations before progress payments are made to the builder and at the completion of each of the following construction stages:

1) For the purchase of the vacant land
2) After the laying of the flooring
3) After the installation of the roof (including the frames)
4) At lock-up stage, and
5) At the completion stage

Now, what Happens with the Construction Loan at the Completion of the Building Project?

Upon completion of the building project, your loan will roll over into a standard Principal and Interest home loan.

And What Additional Documents are required for Processing a Construction Loan?
Construction Loan Providers will need to see copies of the following documents, before issuing unconditional approval:

1) Fixed Price Building Contract
2) Council Approved Plans and Specifications

So, don’t forget to provide these additional documents along with your financial documents to the lender. If you keep the entire paperwork ready, the lender will be able to provide you quick approval on your loan application.

Now I can believe that you have understood everything about construction loan in detail, you apply for the loan package. Magna Capital Group (MCG) is a reputed Construction Loan provider in California. We have a team of expert and professionally qualified finance brokers. Our team of expert finance brokers will leave no stone unturned in obtaining a pre-approved construction loan for you.

Call on (323) 655-6888 today or visit our website and fill “Loan Application Form Online” form. And, you will be able to start an obligation-free discussion with our professionally qualified and expert finance broker today. Our team will even find the best programs to meet financial goals and specialize in innovative real estate financing for borrowers who fall outside the box of traditional lending guidelines.