Home construction loans help you finance your new home from the ground up. This page describes the typical Terms for Home Construction Loans, and is the second part of our article that will help you understand all about construction loans and how they work.
[Click here for Part 1 of this Article on Home Construction Loans]
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Terms for New Home Construction Loans
In addition to construction budgets, draw schedules, converting loans and some of the other unique aspects of construction loans we’ve described, continue reading to learn about how construction loans work and the typical loan terms. We’ll now look at the following loan terms and characteristics:
- Down Payment/LTV
- Loan Length
- Amortization & Payments
- Interest Rates
- Underwriting & Processing
The crash of the nation’s housing markets directly affected the financial industry and its willingness to extend real estate credit, especially loans for new development, vacant land purchases and new home construction. All of these loan types are considered “riskier” loans by banks, so they simply were not even offered by banks for several years. Under those economic conditions there were not as many borrowers actively seeking these types of loans at that time anyway. Read more…
Home construction loans help you get from a vacant lot…into your dream home. So if you’re dreaming of building a new house from the ground up, you first need to understand construction loans. Home construction loans are not like most loans and in this article we describe how they work, typical loan terms and how these loans are different from other real estate loans.
Also read our other articles in this series on real estate loans for buying land and building homes:
Be Prepared When Seeking Construction Loans
Building a new home can be an exciting experience, and if you’re ready to start building your new home as soon as possible then a construction loan likely is what you need. But to apply for and close on this type of loan you first must be prepared, meaning you will need to complete some important design and planning work in advance. Read more…
From a borrower’s perspective, it often is more difficult to get lot and land loans than it is for the same borrower to get a loan for buying a built home. Understanding the bank’s perspective can help explain some of the reasons why lot loans and land loans are treated differently by banks.
In the first article in this series we discussed how your own personal situation and needs can help you decide whether you should seek a construction loan, lot loan or land loan for buying a homesite and building a new home. In other related articles we explained how Home Construction Loans have their own unique requirements and procedures and also described the terms for Lot and Land Loans in more detail.
Borrowers who are seeking financing will learn that lot and land loans can be both harder to acquire and have less favorable terms when compared to the typical “purchase money” loan for buying an existing home. In fact, you may find that some banks just don’t offer lot and land loans at all, or only provide them with onerous loan terms that you would not even want to consider.
In our first article in this series we help you decide between loan types, and whether your situation means you need a construction loan, lot loan or land loan for financing a lot purchase and building a new home. We’ve also described the details about home construction loans and their unique terms and procedures. This article gives you some more information about the particulars of Land and Lot Loans.
It’s safe to say that loans for vacant land are different than “purchase money loans” for buying already-built homes, and there are a number of reasons why banks treat land and lot loans differently. In this article we describe what those differences mean from a borrower’s perspective, including details about the loan terms, additional underwriting requirements and other characteristics of lot and land loans.
Lenders may Distinguish Between Lot Loans & Land Loans
Although we’ve included loans for lots and land in the same discussion here, there even can be differences in a lender’s loan terms and requirements based on whether the property is a finished lot in a platted subdivision or is a vacant, undeveloped parcel of land.
The loan terms and underwriting for a formal lot with a road and utilities may be less rigorous than loans for undeveloped land. A finished lot can give the lender more comfort, as it is another step closer to being ready for a new home (the preferred form of collateral for most residential lenders). Read more…
Buying land and building a new home can be an exciting experience, and if you plan to get financing you need to understand your options related to lot loans, land loans and construction loans.
What kind of loan is right for you? Even though it may seem obvious, this question does not always have a clear answer and the subject often is misunderstood by potential borrowers. It’s important to understand that these loans have unique characteristics and the lending options that are available for you will depend on factors like your personal situation, the type of property you are buying, your level of preparation and your timing for building a home. This article will provide an overview of (a) Lot and Land Loans, and (b) Home Construction Loans, to help you consider what fits your needs. A related article in this series goes into more detail about the terms for lot and land loans and another describes the terms for construction loans.
These Loans Are Different
Most homeowners are familiar with the typical mortgage loan used to finance the purchase of an existing, already-built home (referred to by some as a “purchase money” mortgage or loan). Purchase money loans are the standard of the residential lending industry, and entire financial markets, mortgage products and automated systems have been created to make these loans efficient and easy for banks to underwrite and process. Read more…