If you're planning to build a custom home, you'll likely need a construction loan.
Construction loans are specifically designed to finance the construction of a new home. They are typically short-term interest-only loans, meaning that the borrower only pays interest on the loan during the construction period.
Construction loans, or draw mortgages, provide the borrower with the funds needed to pay for contractors and supplies upfront and then repaid over time with interest.
The contractor does not receive the entire loan amount upfront to build your home. Instead, the contractor will only receive money proportionate to the completion of the house. This ensures that the construction loan funds are used towards constructing the home.
Construction draw schedules help ensure that construction proceeds smoothly by outlining when construction draws are paid. This schedule is negotiated before construction begins and can be based on milestones (such as when the foundation or roof is complete) or a general percentage of the total home finished. Having a schedule like this in place can help ensure that construction proceeds smoothly and that everyone involved is paid on time.
Construction loans program could help you get up to a 95% loan-to-cost ratio, making your project easier to get off the ground.
To ensure a successful loan, lenders must work to ensure that every project meets the following three objectives: