Interest Rate For Home Construction Loan

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Interest Rate For Home Construction Loan


Apartment Listing  

Construction loans work a bit differently from conventional mortgages. Since the lender is financing the cost of construction, during the actual construction the loan is usually not due.

The homeowner is expected to make interest-only payments during this period.There are basically two types of construction loans. The conventional construction loans are aimed at investors who are building houses for profits. These loans have a different rate from the owner-builder construction loans. Owner-builders are homeowners who wish to live in the house after constructing it. Both the above rates are dependent on the national prime mortgage rates. The loan has two separate periods, with the first period being the period of construction where the interest is fixed and you will make monthly payments on the interest. The second period begins when the house gets its certificate of occupancy. The loan can be changed from a fixed rate to a floating rate if you so wish.  Otherwise, the rate is calculated again depending on the market value of the house.

However, owner-builder construction rates during the first period are usually much higher than traditional construction loan rates during that period. With a conventional construction loan, a qualified contractor will be overseeing the project. A contractor has plenty of experience sticking to the construction plan and keeping costs to a minimum. However, most owner-builders do not usually have any construction experience. Since the owner is his own contractor it is likely that the expenses get out of hand or the project runs too long. These factors are the reasons for the high default rates on owner-builder loans. 

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Interest Rate For Home Construction Loan