Construction Loans
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How to finance residential and commercial construction projects
Construction loans are financial instruments that are used to finance
real estate construction. In the residential real estate market,
there are two ways to finance construction: 1) by using two loans,
the first a construction loan that covers the period of construction and
the second a permanent loan used to pay off the construction loan; or 2)
a construction-to-permanent loan where the construction loan is converted
to a mortgage once the certificate of occupancy is issued.
In both cases, the construction of the home is financed by the construction loan, which the lenders pay out in stages as the builder needs funds. The lender must, therefore, monitor the builder's progress, which is one reason why fees on construction loans are higher than on conventional loans. During the construction period, you'll typically have to pay interest-only payments based on a variable rate.
For home buyers that are planning to sell their current home once their new home is built, a bridge loan may be a good option. In residential real estate, bridge loans are used to span the time between when buyers buy a new home and when they can sell their old home. When paired with a construction loan, the bridge loan can be used as a down payment. To find rates on construction loans and bridge loans, check out hsh.com. For more information about construction loans and answers to frequently asked questions about these loans, visit the Mortgage Professor.
Commercial Construction Loans
Two common types of loans in the commercial real estate market are
acquisition and development loans and construction mini-perm loans.
Acquisition and development loans are long-term, fixed-rate loans that can
be used to acquire and develop fixed assets such as land or a
building. Construction mini-perm loans are typically used to finance
the construction of income-generating properties that need to establish an
operating history before the owner can qualify for long-term
financing. Mini-perm loans typically last between three and five
years; they are often used to finance construction of shopping centers,
office buildings, industrial properties, and
large apartment complexes. For more information or to check out
commercial construction loan rates, visit
C-Loans.com or
BusinessFinance.com.
Related Real Estate and Finance Sites
- Home Mortgage Loans - first mortgages and home refinancing.
- Home Improvement Loans - financing a home remodeling project.
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