Finally taking the initiative to build the house of your dreams? You’re going to need a form of secure financing to propel your construction project. In cases like these, traditional mortgages aren’t typically applicable. You’ll need a different short-term financing option to complete your construction project.
This is where construction loans come in the picture.
What Are Construction Loans?
Also referred to as self-build loans, construction loans are short-term loans that are most commonly used to finance real estate projects such as the building of a home. The loan is taken to cover the construction costs of the project and serves as short-term funding (usually 12 months or less).
Construction loans are high-risk loans. As a result, they also have a higher interest rate than traditional mortgage loans, and are trickier to obtain due to the risks attached.
How Are Construction Loans Different From Traditional Home Loans?
Traditional home loans are based on a property’s market value. The condition of the home as compared to other properties helps determine the specifics of the home loan. Typically, home loans may last between 15 to 20 years, or even longer, at a fixed rate. The recipients of the loans are required to pay both the principal as well as the interest during this term.
On the other hand, construction loans are based on the projected market value of the home that is yet to be built. Since the structure doesn’t exist and there is no guarantee that the project would be complete within the short-term period, lenders are more reluctant to offer construction loans. Unlike how it is with mortgages when the lender can acquire the home for compensation, this isn’t possible for construction loans. Thus, the lender usually makes periodic payments for the duration of the loan.
Why Opt for a Construction Loan?
Despite the challenges involved in getting one, a construction loan can be quite beneficial. For one, it’s an interest-only loan. You’ll only have to pay interest-only payments on the loan, instead of paying both the principal as well as interest.
Secondly, a construction loan allows you to negotiate flexible terms of the loan based on your specific construction plans. You can work out your loan terms with the lender as per your project needs, to some extent.
Finally, since construction loans add an element of scrutiny to your project as the lender needs to know how it’s pacing along, there’s a high possibility of you completing your construction project within the initial timeframe and budget.
Construction Loans in NY
Global Capital Partners Fund offers different kinds of construction and development financing solutions in NY. These include:
- Land Development Loan
- Takeout Loan
- Interim Construction Loan
- Acquisition and Development Loan
- Mini Perm Loan
For more details regarding their construction loans and commercial financing options, get in touch today by calling at +1-800-514-7350!