There are some unions that finance home buyers or those who want to build their homes, and this funding is referred to as construction loans, which is usually a short term loan. People who want to build investment projects cannot be allowed to access construction loans, but instead they should apply for permanent mortgage loans because construction loans are for people building their own homes. These loans are used to finance a building project before you get a long term funding and they are for a period of one year.
Usually these loans are considered very risky, and therefore their interest rates are higher than those of permanent mortgage loans. According to the terms and conditions of construction loans, after the completion of the building project the home builder should get some other loan to pay this loan if they have not enough money to pay or refinance it to the level of a permanent mortgage loan and follow its criteria for payment. Different from other forms of loans, construction loans require the borrower to pay the interest until the project is complete in order to start clearing the loan. Sometimes when the borrower needs the home built the lender might pay the contractor directly rather than giving the money to the owner. When this happens the lender gives out the loan in installments as the project approach new construction stages as the contractor requires to pay.
It is very impossible to get total funding to build a home of your dream, and for most money lenders you are required to provide between twenty to twenty-five percent of the total construction cost. This loans are not easy to get especially if the borrower has a limited credit history or doubtful financial background. For obvious reasons, the borrower has to submit comprehensive project details to the lender and also prove to him that the money will do its right work correctly to prevent losses. The construction loans are only offered by local unions and regional banks which are familiar with the region and understand the construction companies of the region.
For people intending to build their homes or their own plots, construction loans is advisable because of the following benefits. When the lender advances the loan as the construction project proceeds helps the borrower to keep focused on the project and not divert the loan to other uses. These loans are effective when it comes to paying because the monthly installments required are low and affordable as the time to completely pay the loan is long enough. Taxation increases the cost of loans, but only for construction loans, costs are not subjected to any taxation making them affordable. The most important thing with construction loans is that their interest rates are based on the money market meaning when the market is high, the interest is lower.