by Greg Cryns

           A construction loan might be a better option for you if you’re considering building your own home.  Your approval isn’t as cut and dry as other loans, however – the lender needs to know more information about the project than if you were trying to fund an existing home.

            The great thing about a construction loan is that you get a reprieve from paying the full loan payments until the construction is complete.  During the building process, many home construction loans will allow you to only pay the interest.  Once the home is complete 

and you have a certificate of occupancy, then your payments begin to cycle in full, so that you start paying down the principal on the loan and not just the interest.  

            You won’t be the only person to negotiate with the lending institution.  Your contractor and builder will have input into how much money will be dispersed at different stages of the project’s completion.

            One thing that can help you with a home construction loan is if you pre-buy the land your house will be built on.  Land has equity value just as a home, because it usually rises in value over time and doesn’t decline.

            With most home construction loans, you’ll be able to convert it into a normal home mortgage after the building is complete.  The great thing is, you don’t have to go through the entire refinancing process at this point because it automatically converts.

            Most home construction loans have variable interest rates, but it is possible to get a locked in rate that’s expected to last you through the building process.  Always allow for more time than you need, since building a home often means encountering delays.  

            A home construction loan is a short-term loan.  The longer you want it for, the more interest you’ll be paying.  But you still want to shop around and make sure you get the best deal or your investment. 

            There are other options to financing the building of your new home.  For instance, many builders have financing available – but this may always be in your best interest.  When the builder is financing the loan, he or she is usually paying interest on the construction loan they’re getting, so they work hard to complete the job quickly.