There are several types of new construction loans that borrowers can choose from, each with its own unique features and requirements. Let’s have a look at some of the most common types of construction loans:
Construction-to-Permanent Loans: Also known as a “single-close” loan, this type of loan combines both construction and mortgage financing into one loan. Borrowers receive funds to cover the construction costs, and once the construction is complete, the loan automatically converts into a traditional mortgage.
Stand-Alone Construction Loans: This type of loan only covers the construction phase of the project and requires the borrower to obtain a separate mortgage once the construction is complete.
Renovation Construction Loans: These loans are designed for borrowers who are renovating an existing property rather than building a new one. They allow borrowers to finance both the renovation and construction costs.
Owner-Builder Construction Loans: These loans are designed for borrowers who plan to build their own homes rather than hire a contractor. They provide funds to cover the construction costs and typically require the borrower to have extensive construction experience.
End Loans: An end loan is a type of long-term loan that is used to pay off a construction loan or a short-term interim loan once the construction is complete. These loans typically have a longer repayment period and a lower interest rate than construction loans because the home is already built and serves as collateral.
Spec Construction Loans: These loans are used by builders and developers to finance the construction or building home without a buyer in place. Once the construction is complete, the property is listed for sale.
It is important to note that the specific requirements can vary depending on the lender and the borrower’s individual circumstances. Borrowers should carefully research and compare their options before choosing a new construction loan.