If you’re planning to build a new home, you have multiple options for financing the land and the home’s construction. Suppose you’re ready to purchase a lot or land but are not prepared to begin construction. In that case, a bank or credit union may be a terrific resource for land loans. If you’re ready to buy land and begin construction immediately, you may find better interest rates or more favorable terms by working with a mortgage broker experienced in construction loans.  

New Construction and Land Loans

Construction loans may offer the simplest solution for purchasing land and building on it immediately. Construction loans can eliminate the need to secure land loans from a bank and then a separate loan for the construction. Moreover, a construction loan may be used to pay off existing land loans you may have while providing the financing you need to build your property. There are two types of construction loans.  

Construction to Permanent Loan

A construction to permanent loan is often ideal for borrowers renting a property while building their home. These loans can be secured to finance the land you’re buying and the cost of building the house. Benefits of construction to permanent loans include:

  • Single Closing Costs and Fees

You’ll only pay closing fees and costs once with a construction to permanent loan. By contrast, borrowers who secure land loans, then construction loans, will have to pay closing costs and fees for each loan.

  • Interest Only Payments During Construction

While your home is being built, you won’t be required to make principal payments. You’ll only be responsible for interest payments. However, keep in mind that construction to permanent loans typically have variable interest rates, which means the interest payment is not fixed during construction.

  • Conversion to a Traditional Mortgage is Easy

Once the home is finished, refinancing into a traditional mortgage should be easy if you work with a mortgage broker experienced in construction, FHA, Jumbo, and VA loans.

  • VA Construction Loans Offer Incredible Benefits

If you served in the U.S. military, a VA construction loan might be a terrific option for avoiding separate land and construction loans. With no down payment required, a fixed interest rate, delayed mortgage payments, and lower credit requirements, VA construction loans are fantastic products for veterans. 

Construction Only Loans

Loans for construction only are an option for individuals who have already secured financing for the lot or acreage or own the property outright. These are short-term loans available only during the construction phase of your new property. Once construction is complete, you must apply for a traditional mortgage. 

Construction-only loans come with inherent risks. If your employment status changes or you experience a significant expense (medical care, loss of a spouse, etc.), you could be denied a traditional mortgage once the home is finished. This is a rare situation, but it can happen. For most people, combining the purchase of the land and the construction into a single loan often makes more sense because it is less risky. 

Find the Perfect Construction Loan in Oregon 

Construction to permanent loans can eliminate the need for separate construction and land loans. To learn more about financing new construction in Oregon, contact our experienced team at Strategic Mortgage Solutions today by calling 541-275-1148.