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Home Construction Loans
by Kevin Adelsberg
You've found the perfect piece of land for your dream home.
Now, you've got to find a way to get your plans off the ground.
Because of the risks involved in letting a builder finance home
construction, many financial planners recommend taking out a
special home construction loan.
You can maximize your savings by shopping for a lender that can
provide you with a combination loan. The combination loan starts
as a construction loan. During this phase, your lender cuts
checks to your builder and their subcontractors as they
successfully reach significant steps in the building process.
Once your home nears completion, your lender activates a
traditional mortgage. The new loan pays off your construction
loan and rolls the remainder into the assessed value of the new
property.
The first way a combination loan can save you money is by
eliminating a second set of closing costs. By handling both deals
simultaneously, you save yourself and your lenders considerable
time and money, savings that lenders are happy to pass along in
the form of preferred rates.
Many banks let the commercial side of their business handle
construction loans, while the consumer division oversees the
mortgages. Therefore, the best place for you to start your hunt
for the best deal is with the branch manager of the banks with
offices in your area.
Unlike traditional mortgages that can be handled over the phone
or the Internet, construction loans require significant local
oversight. Fortunately, commercial lenders enjoy the opportunity
to plant more roots in their communities. In fact, the commercial
banker handling your quote for the construction loan may be able
to pull strings to get you a more competitive quote for your
eventual mortgage.
When shopping for construction loans, understand that the
commercial lender will charge a much larger administration fee
to compensate for the step-by-step management of your building
process. Sometimes, you can expect to pay three, four, or five
points (percentage points of your home's value) as a fee to the
bank. Considering the amount of work involved in communicating
with builders and subcontractors, most administration fees
actually pay for themselves by freeing up your own valuable time.
As an incentive to keep all of your business under the same roof,
many banks will actually rebate much of your commercial loan's
administration fee when the time comes to roll it over into the
mortgage. You may receive a personal mortgage with no points, or
you may even receive rebate points that you can apply to the
principal.
Throughout your planning process, involve local banking
professionals and ask your builder about positive experiences
they have enjoyed on past projects with your contender lenders.
Kevin Adelsberg is a writer for FDLoans.com.
For additional articles and an extensive resource
for everything about loans, please visit
http://www.FDLoans.com
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