Constructing a home is a dream for many people. You can create space according to your needs from scratch. You can make it as big as you want or as small as you need. Once you have found your ideal location, it’s time to get down to business and start building your dream home. If you think mortgages can be a concern for such properties, relax! Drew Mortgage Associates is here to help. Have you ever heard of Construction Loans? Let’s understand what they are and how they are different from Traditional Loans.
What are Construction Loans?
As the name suggests, construction loans refer to any loan used for the construction of a house. It is one of the leading land and construction loans. These loans are typically given to a business, contractor, or individual that will be used for the construction of a building. These loans provide you with the funds needed to build a house on land over a short period, generally one year. The funds cover all types of expenses that go into constructing a home, such as land, building materials, permits, labor, and more. Since the funds are specifically given for construction purposes, lenders often require a detailed explanation of what you will do with your loan once it reaches your bank account; you must provide this information.
How do Construction Loans Differ From Traditional Loans?
In a traditional mortgage, lenders offer lower interest rates as they have your home as collateral if the borrower fails to repay the loan amount. Whereas in construction loans, the mortgage lender does not have anything to recover the loan amount. This is why interest rates are higher. First-time Homebuyers in Massachusetts can get this loan depending on their eligibility.
Another point of consideration is the period of loan repayment. Construction loans are given for a shorter period as compared to traditional loans. There is a high risk involved and this is why mortgage lenders try to recover it as soon as possible.
For traditional loans, mortgage lenders may check your credit score and other documents for eligibility. It is not so simple with construction loans. A borrower needs to give the lender a build timeline, a detailed construction plan, cost estimation, and more.
The construction loan has a fixed amount of money that is given to the borrower as the construction progresses. This loan is used by lenders to cover up their risk and provide financing for the project.
How do I prepare for Construction Loans approval?
If your idea is to get approved for construction loans Massachusetts, MA, keep the following things ready. Also, remember that not all lenders provide construction loans. You can connect with Drew Mortgage Associates for the best interest rates in MA.
- A contract between you and the builder. It is almost like the sale and purchase contract signed when buying a resale home.
- A copy of the builder’s license will be required.
- The lender will need a detailed plan of construction work and estimated costs of construction. Make sure you count all the important expenses such as cooling, electrical work, heating, plumbing, and more.
- A detailed blueprint of the property area and the home design you are planning to build.
- Make sure you list all the outside expenses such as sheds, landscaping, swimming pools, landscaping, parking area, etc.
- The lender will need a real estate appraisal to check the market value.
Get Easy Loans in MA
Now that you are all aware of the construction loans, the differences, and the document requirements, let’s discuss how Drew Mortgage Associates can help you. We are here to cater to your financing needs and help you build your home the way you want! Get in touch with us today!