A home construction loan is a very sensitive loan, which a lender must first be notified of the construction to be, before issuing a loan. One distinctive feature of this kind of loan is that there is no collateral. This is mainly because you do not own a home but it is still to be built. That means that your lender will have to take your word regarding to payment. It is a known fact that building your own first home or that home of your dreams can be stressful at times when it comes to funding. That is why there are two types of a home construction loan that you can apply for. Difference between these types of loans lies in the procedure you have to follow in order to obtain each one of them. These two types include new home constructions loans and stated income construction loans. You should therefore choose what kind of a home construction loan you want depending on which procedure you prefer to follow.
How Home Construction Loans Work
Any home construction loan is sensitive to a lender since there is no collateral. A big problem to them is taking your word and not any other thing to guarantee that you will pay back. To solve this problem, most lenders will want to be fully informed about how your project will be going. After your loan has been approved, it will be divided into quotas over a certain building schedule. You will therefore be getting this money according to how your construction will be going. What really happens is that you divide your construction project into different divisions and then send this plan to your lender. Money will be released to your during each construction segment depending on what you had started the segment would const.
Payment of your a home construction loan is highly dependent on what kind of a loan you applied for. If for example you applied for an all in one loan, you will pay the loan after construction completion, but it will be turned into a mortgage automatically. This means that you have a chance to finish payment of your loan after it has been completed. There are other types of loan where a construction loan is due upon completion of construction. This means that you will have to pay your construction loan in full when your home has been completed. But, even with the latter type, you still have an option to convert your loan into mortgage and pay it with a definite time plan.
Comparison between Different Types of Construction Loans
There are two different types of home construction loans; new home construction loan and stated income construction loan. A comparison between these two types of loans will give you insight leading to an informed decision. But that does not mean that choosing is your play. A stated income construction loan is for those whose income cannot be stated. This includes self employed people who do not have a definite figure as income. You can also benefit from this kind of a loan if you do not share information on how much you earn. One great advantage of this loan over new home construction loans is that it is first to acquire. Its process is simple and therefore a better option when these loans are compared.