Found the perfect lot in a great Eugene neighborhood? With the right financing, you can turn that empty space into the home you’ve always dreamed of. A construction-to-permanent loan may be just the solution to bring your vision to life! Let’s explore how it works.
Construction-to-Permanent Loan Basics
Let’s take a look at what a construction-to-permanent loan is; basically, it’s a way to finance the construction of a house. The financing begins as a construction loan that becomes a permanent home mortgage after the building is completed.
Although this type of financing converts into a home mortgage, it’s very different from a conventional home loan. The main difference is that regular home loans do not finance the purchase of land. Therefore, you can’t use a traditional home loan to buy an empty piece of land to build your dream home in Lane County.
An exciting feature of this loan is that you control how much debt you accrue during the project. Unlike traditional home loans, where you work with a lender to borrow money for a specific property, a construction-to-permanent loan works more like an equity line. You decide how much money to spend from a maximum loan amount, like you would with a credit line.
A construction-to-permanent loan is an outstanding option to consider when you find a particular property that makes you want to plan your future. However, as with a lot of home loan options, there are pros and cons to learn before jumping in.
Pros and Cons of a Construction-to-Permanent Loan
Every kind of real estate financing carries its share of perks and downsides. Here are some pros and cons to understand when considering using a loan that flows seamlessly from construction to the monthly mortgage payment phases.
Pros
One of the biggest pros of this type of loan is its simplicity. Rather than applying for separate construction and mortgage loans, you only go through one approval process. Another major perk is that you only pay one set of closing costs. Traditional construction loans often require borrowers to pay closing fees twice- once for the initial construction loan and again for the permanent loan. Instead, these costs are consolidated into a single transaction, saving you money up front.
Additional benefits include:
- Locked-in Interest Rate: In many cases, you can lock in your mortgage interest rate at the start of construction, protecting you from potential rate increases.
- Convenience and Continuity: You’ll usually work with the same lender throughout the entire process, reducing delays and miscommunication.
- Flexible Terms: These loans often offer customizable repayment options and can be tailored to suit your financial situation and timeline.
Cons
A main downside to this type of loan is that the lender assumes substantial risk before the home is complete.
As a result, you can expect:
- Extensive loan documentation requirements
- Interest rates that are higher than those of conventional loans
- Interest-only payments during the construction phase
- Substantial down payment requirements
Requirements to obtain the loan vary according to the lender. It’s worth it to compare lenders to get the most advantageous loan package for your project.
Simplify Your Home Build
There’s no question that you’ll appreciate a smooth financing process when you use a construction-to-permanent loan. The basic steps you can expect to go through to build your dream home are outlined below.
Examine Your Financial Situation
Before you visit a lender, it’s smart to analyze your financial situation in detail. Find out your credit rating and take measures to improve it if necessary. Make sure you know how much money you can afford to invest in a new home.
Apply for a Construction-to-Permanent Loan
Since construction-to-permanent mortgage financing works in a line-of-credit manner, you’ll apply for the loan before you purchase the land. You can tap into the loan money to pay for the land, construction, and mortgage.
Work with a Real Estate Professional
Lane County real estate is in high demand. Hiring a real estate professional who has experience helping clients purchase buildable land is an essential part of successfully constructing your dream home.
Partner with an Architect and Contractor
Once you buy the land for your house, you’ll have a more solid idea of how much money you want to spend on designing and constructing the structure. High-quality architects and general contractors are experts in designing and crafting beautiful homes that meet your needs and budget.
You can withdraw money from the construction loan amount as the project moves through the process. An inspector from the lender will typically check to ensure that the agreed-upon work is complete before releasing the funds.
Generally, you’ll have approximately one year to finish your construction project. Since your lender wants you to turn your empty lot into a completed home within twelve months, knowing what you want out of the project early on is vital.
Final Thoughts
Using a construction-to-permanent loan to build your dream home makes for a smooth process. Partnering with a first-class lender and experienced professionals in real estate, architecture, and construction will help to create your ideal home.
The lending officers at Strategic Mortgage Solutions will help you understand the pros and cons of construction and mortgage loans. Contact us to discover how the right kind of loans can make all the difference in building a house in Eugene, OR.
