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Is a Construction Loan Better than Buying a Home

Constructing your own home will be cheaper than buying a similar home available in the market. It involves an experienced contractor, good plans and the correct financing which is the construction loan.

Construction loans were very high because the national prime rate was also very high sometime back. People did not like the idea of paying large sums so they can borrow funds, as a result, they decided to finance their home constructions with their savings or the credit lines of existing homes. In case of budget exceeded their saving or they ran out of their savings they fell in problems. There are available low rates to construction loans that many people are turning to them. Construction loans are economical, and they ensure they are completed on a budget or on time due to the available in-built protection.

Buying a home available in the market will be expensive compared to constructing the same kind of home despite the home values dropping. This comprises of buying a “tear down” or a lot and constructing it from the start and improving the home or a bought property from foreclosure. It is better to borrow money for such project instead of using up your money. Leverage boosts your ROI as most real investors know and you can invest elsewhere. A project is financed by the borrower to a certain minimum amount, and the construction loan completes the rest. Your home is a greater investment if it is constructed on borrowed money.

Construction loans provide safeguards which keep your venture under budget and on time. Ensuring your project is with the best builders is the first thing that the bank giving you the loan ensures. Some banks require that you include the contractor’s package for approval along with the construction application being made. In case your builder has previous lawsuits, complaints to the licensing board, bad credit all this will be captured by the bank and your builder will be rejected. Your home construction will be watched from start to finish by the bank financing the construction loan. The approved contractor will be expected to make requests for more finances after they complete a given part of the project. To ensure the job is being done satisfactorily, banks will from time to time make site visits.

The builder and the project have to undergo due diligence from the banks financing. When some loans are moved to permanent storage, this is known as one time close, and it happens after the construction phase is completed.

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