What are Construction Loans and How Do They Work?
Key Takeaways for Construction Loans with LendLogic
- Construction loans are short-term financing options to help you build your dream home from the ground up.
- Certain construction loans can seamlessly convert into a traditional mortgage once the home is completed.
- These loans typically have more stringent criteria and higher interest rates compared to conventional home loans.
If you’re having trouble finding the perfect home to buy, building might be the solution. Financing a new construction project is different from purchasing an existing home. Instead of a traditional mortgage, you’ll likely need a construction loan. Here’s what you need to know about construction loans and how LendLogic can guide you through the process.
What Are Construction Loans?
Construction loans are designed to cover the costs associated with building a new home, from purchasing the land to paying for materials and labor. At LendLogic, we offer two common types of construction loans:
- Standalone Construction Loan: This short-term loan covers the building phase and is typically repaid with a separate mortgage once the home is finished.
- Construction-to-Permanent Loan: This loan transitions into a traditional mortgage once your home is complete, saving you the hassle of securing separate financing.
What Costs Are Covered by a Construction Loan?
You can use a construction loan from LendLogic to cover various expenses, including:
- Land Purchase
- Contractor Labor
- Building Materials
- Permits
However, construction loans generally do not cover design costs like hiring an architect or interior designer, so you’ll need to budget for those separately.
How Do Construction Loans Work?
Construction loans typically last for a year or less, during which time your project must be completed. With LendLogic, we release funds at different stages of construction based on project milestones. This ensures that you’re only paying for the work that has been completed, and it helps keep your project on track.
Construction Loans vs. Traditional Mortgages
Here’s how construction loans differ from traditional mortgages:
- Funds Distribution: Unlike a traditional mortgage, which provides a lump sum, construction loans distribute funds in stages as the project progresses.
- Repayment Terms: During construction, you only make interest payments on the funds that have been drawn. Full repayment, including the principal, typically begins once construction is complete.
- Inspection Involvement: To ensure the project stays on course, LendLogic requires inspections at key stages of construction. This helps protect both your investment and ours.
Types of Construction Loans Offered by LendLogic
- Construction-to-Permanent Loan: This option converts into a traditional mortgage after construction, offering the convenience of one loan and one closing.
- Construction-Only Loan: This loan covers construction costs, but you’ll need to refinance or secure a separate mortgage once the home is built.
- Renovation Loan: Perfect if you’re upgrading an existing home rather than building from scratch.
- Owner-Builder Loan: For those with the skills and credentials to act as their own general contractor.
Why Choose LendLogic for Your Construction Loan?
At LendLogic, we understand the complexities of building a home in Southeast Georgia. Our local expertise and personalized service ensure that your construction loan is tailored to meet your specific needs. With competitive rates and flexible terms, we make financing your dream home as straightforward as possible.
Start Your Journey with LendLogic and let us help you turn your vision into reality.
