When taking out any construction loan you need to understand that a "closing" is required and this invloves signing temporary loan documents that set out the terms of the financing for the contruction period of the home. When construction is finished the loan is transformed into a permanent loan and this is called an "end" loan.
If you are taking out a single-close loan then the loan should cover the purchase of the plot of land, materials and labor. When the home has been completed, you can then have the loan turned into a regular mortgage without having to face any early-repayment fees or such like. During the contruction phase, the loan will be interest-only and on the amount that you borrow. When turning the loan into a permanent mortgage can be either fixed or adjustable rate and you'll want to be able to have the amount of interest reduced depending on the market rates of the time that your home is completed.
With a "double-close" loan you might think of it more as refinance. Basically when the contruction of your house has finished, you can decide what the loan amount, interest rate and various other things ought to be.
There isn't an awful lot of difference between the two types of loan however it's still a good idea to make sure you look at the details you get from the lender. Everyone has unqiue circumstances so what is best for one person might not be as good for another.
Whatever loan you choose to take out, make sure you do your sums in terms of how much your home is going to cost to buid. Frequently people underestimate how much the contruction process costs and it can end up costing 30% more than anticipated. A big problem people have is changing their minds about the house plans. They decide they actually want the third bedroom larger or the kitchen should go to the other side of the house. All these changes just add more to the amount of money you are going to spend. So be very careful otherwise you might find yourself in serious financial trouble and end up being forced to sell your dream home.
Tags: construction loan, new home, labor, materials, mortgage
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