What are Construction Loan Rates
It is not that easy to find the right Construction Loan Rates when you are in the market to buy a new house. Your credit rating does matter. A poor credit rating will make it that much harder to secure a loan. This is unfortunate for many people.
There are different types of loans for homes versus construction. Good to excellent credit is required. A low debt-to-equity ratio is extremely important when seeking a loan. Having a decent down payment of at least 25 percent will greatly increase your chances of success. The prime rate on construction loans may be lower than the prime rate on a home mortgage. But construction loans have several advantages over homes. To learn more about the construction industry, check out this article by the University of California at Berkley.
Loans for construction are flexible and customizable, which make them appealing to borrowers. Most borrowers have little knowledge of financial situations and have little to no experience applying for traditional mortgages. These type of loans are not an automatic solution to bad credit. Traditional mortgages require applicants to have a good financial situation in order to qualify. Most loans for construction require no such financial background check.
Benefits of Finding the Best Construction Loan Rates
Traditional mortgages are also considered riskier financing. Most of these loans involve less risk because there is no “second” party involved. When a borrower fails to pay a mortgage on time, their first priority is often to get a hold of the lender. With a traditional mortgage, if the borrower misses a payment, the lender has the right to take legal action. In this case, the lender can shut down a business and seize the property.
In contrast, these loans do not require collateral to secure financing. These types of loans are perfect for homeowners who own their home outright but have little down payment. Loans designed for construction are perfect for borrowers with CCJs, bankruptcy judgments, default in payments, foreclosure, and arrears. In fact, these loans are perfect for homeowners with even bad credit records. Because they offer more flexible terms and lower interest rates than a traditional permanent mortgage. Some loans are even available to homeowners with poor credit ratings, as long as the borrower has a steady income from a job that pays at least as much as the mortgage payment.
A one-time close loan will result in a lower closing cost. Since the loan is for a shorter term, the total cost of financing is lower. For example, a 30-year permanent loan would cost more in the long run because the interest rate is one-time and the loan term is shorter.
Summary of Construction Loan Rates
Construction rates are based on several factors, including the homeowner’s credit score, down payment money, and type of property being used to finance the loan. For example, a low credit score can reduce the amount of money loaned and the interest rate charged. Likewise, properties that require more down payment money and those requiring significant amounts of collateral will result in higher loan rates. If you need to finance your project using a single close construction rates may be better suited to your needs than a longer term mortgage, especially if your credit score and cash flow are a concern.
One advantage to going with a construction loan is that the borrower will not have to wait until completion of the project to take out a mortgage. Once the construction process is complete, the lender will issue the final deed to the land along with the construction loan documents. This means there are no mortgages to pay, no additional payments to make, and no additional ownership issues. A close construction loan will allow the borrower to move on with their life immediately after the construction process is completed.