How do construction loans work?
My husband and I are working with a builder of a subdivision we are planning on building in. We chose a home from the options this builder has for the sub. To get started on the house, we need to give him $5,000 down. However we do not have the funds saved so we are able to do a construction loan. I’ve heard so many things about construction loans and how the fees are horrible. Yet, its been so hard for me to find any information. Would the fees be that steep, even though we only need $5000 down? Is there any specific banks/companies out there that make this process easier that anyone would recommend? Any help or information would be greatly appreciated. Thank You!
December 1st, 2010 at 5:39 am
I think you should consider local lenders on this. I have no idea what the fees are for construction loans, however they will roll the remainding amount into your mortgage when finished and you take on your permanent loan.
December 1st, 2010 at 6:16 am
If you only need $5000 you should approach your bank and see if you can get an unsecured personal loan. Most banks will do that amount unsecured. Most of the time people get construction loans when they are building and they are for a short period of time until the house is built so they can get a mortgage. If you can’t get an unsecured loan then do you have a vehicle with equity that you could borrow against? If the builder is doing the construction loan then you might pay higher fees. Check with your bank.
December 1st, 2010 at 6:23 am
It doesn’t sound like you are being required to get a construction loan. The builder is asking for an earnest money deposit. Typically, builders require $5,000 to start the home and would ask for an additional 5 or 10 during different phases of the project. If they are going to build something to your specifications, they want you to have enough money into it so you don’t back out. The only financing you will need is a normal mortgage, once the house is complete. You will be able to use the money given to the builder as the down payment. Otherwise, you can buy the model.