Question:

What is a construction loan mortgage?

Answer:

A construction loan mortgage refers to financing obtained to have a house built, rather than purchase an all-complete unit.

Ways To Finance Construction

Sometimes a construction mortgage will refer to a single short term loan taken for the construction period; or it could signify combined financing obtained for both building and purchasing the house. If the construction loan will span only the construction period of 6 to 12 months, the builder may decide to take it on behalf of the borrower. Later, the borrower will take a permanent mortgage and repay the builder.

The borrower may also choose to shop for two loans, or for a single construction to permanent loan.

Shopping For Construction Loan Mortgage

If you are shopping a combined construction to permanent loan with one lender, certainly you will save on closing costs if the lender has competitive costs. Also, they will be packaged together and will come cheaper with combined discount points and lender fee.

If you are trying two separate construction mortgage loans with different lenders, you may not only have to pay double closing costs, but will gain no discount. However, it is possible to shop different lenders for separate construction and permanent loans. It is recommended that you do that through a reliable mortgage broker. Since they usually work with tens of lenders, a broker will be able to locate the best construction financing, separate or combined, much quicker than if you do it on your own browsing the web and pulling GFEs.

If you decide to go with the builder funding the short term construction loan, probably your house will be overpriced. It does provide incentive for the builder to work faster but construction financing will be included in the house price and you will not know what the exact cost of the house is.

Chances are a combined construction mortgage will have the best gains for the borrower.

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