First of all it is important to understand what exactly a home construction home is and what it implies. A home construction loan is accessible to all those who wish to build a new home and need the funds to do so. They will contact a loaning company who will require to know all the history and procedures behind the intended construction before granting the loan. The loaning company must have a detailed plan of the work needed, the procedures you will be taking, the total amount you will need and your construction schedules and planning, before it can make a decision whether or not to grant you the construction loan.
A home construction loan only requires interest payments while you are in the construction phase, this will help you get on with the construction without being crushed by high expenses. The actual refunding of the loan will be taken care of once the construction of the new home is completed. This means that you have time before actually having to refund the loan and can concentrate of the construction work.
A new home is defined completed when it receives a certificate of occupancy, this means that it is considered completed when you can actually live in it. The interests of home construction home are generally variable ones, where the person requesting the loan will establish a schedule with the loaning company according to the various stages of construction. These interests will vary according to the amount disbursed during the various stages.
Interests will also vary depending on the amount the loaning company is willing to advance for the construction project of the new home. This will vary according to how many guarantees you can provide the loaning company with as they have no property they can hold as collateral as the new home has yet to be built. If the land on which you will be building your house is yours then the loaning company can consider this as equity on the construction loan and allow the full amount you have requested.
You can always opt for a construction to permanent financing program where the loan is converted into a mortgage loan once the certificate of occupancy is issued. This can avoid the hassle of having to apply for two different types of loans, allowing for just one closing once the total payment is made. Home construction loans are not long term loans and it is important to understand how they differ from other home loans. The loan lasts for the period of the construction and no longer. After which you will need to decide how to cope with the rest of the amount due, either by converting it into a mortgage loan, which you can apply for as there is now a home to act as collateral or another loan type.
Before you choose a home construction loan, make sure you compare the various loaning companies and interests they propose along with fees and terms. Obviously the lower the interest rate the better the loaning plan will be. However, there may be hidden fees and extra expenses you should check carefully on before signing up with a loaning company.