Generally, a construction loan is a short-term loan that is best suited to remodeling a preexisting home. Instead of trying to build one from scratch. Frankly, the loan term is much too short to have much utility as a home mortgage-replacement option. As a higher-risk loan type, you may have trouble securing one unless you go to approved sources.

You can only really expect to have the short-term construction loan for about a year; they are more difficult to qualify for as a result since the risk is higher for the lender. This is why it’s important to understand the different options and to choose the right lender.

There Are Several Types of Construction Loans

For starters, let’s take a look at the Construction-to-Permanent Loan type. Which simply begins as a traditional construction loan for remodeling/upgrades. Over time it changes to a permanent mortgage loan. The benefit to this type is that you are only responsible for interest payments before it is converted to a mortgage. After which you then become responsible for chipping away at the principal and interest. 

The Owner-Builder Construction Loan Option

This one is tailored for property owners or investors with some experience overseeing home-rebuilding or renovation projects. The lending institution that’s responsible for meeting this out will want you to demonstrate this expertise as an essential aspect of the loan application process. Licensing, education, and several years in this field are of paramount importance.

The Construction-Only Loan Type

This might have been first, as it is the most basic and straightforward construction loan. Usually, the maturation period is just a year, making it useful only for short-term home renovation projects. Interest rates can be high to offset the lending risk – but this depends on your credit history.

For more information on construction loans and other finance options contact Means Commercial Capital.