A construction loan is used to finance the construction of a commercial or residential property. The borrower could be a real estate developer or someone building a custom home. These loans are usually short-term and then refinanced with long-term mortgage financing. Construction loans are considered greater risk and typically carry higher interest rates than standard mortgage loans.
How a Construction Loan Works
Construction loans usually have a one-year duration. Once the work is completed, you can either refinance the loan into a permanent mortgage or obtain a new loan to pay off the construction loan, sometimes known as an "end loan." In other circumstances, homebuyers choose a construction loan that automatically transforms into a mortgage once the home is constructed. This is known as a construction-to-permanent loan.
During the building time, the borrower may have to make interest-only payments. In some cases, the entire balance must be paid by the time the project is completed.
If a construction loan is utilized to build a home, the mortgage lender may pay the contractor directly instead of the borrower. Payments are often provided in installments as the project progresses. Building loans can also be used to fund rehabilitation and restoration projects, in addition to new home building.
Eligibility Requirements for Construction Loans
Since construction loans are unsecured, they frequently have more stringent credit criteria than regular mortgages. Because the home does not yet exist, it cannot be seized in the event of loan default. Local credit unions or regional banks are more likely to offer these loans since they are more familiar with their area's housing market and feel more comfortable lending to borrowers in their community.
Most lenders want a 20% down payment on a construction loan, with others asking for up to 25%. Borrowers with a limited or poor credit history, as well as large previous debt, may find it difficult to obtain a construction loan.
To sum up
Planet Financial in Brampton provides construction loans to assist with the development of new houses or commercial properties. They offer flexible lending choices at competitive rates that are tailored to the individual needs of each project. Their construction loans are intended to benefit both residential and commercial developers, guaranteeing easy financing throughout the construction process. Planet Financial works closely with borrowers to assess project plans and get funding. With a focus on customer service, they hope to provide efficient solutions for both new construction and remodeling projects.
