New House Construction loans are different from those loans that are applied to buy already existent homes or what is named a refinance. Mortgages used to purchase homes which are already constructed, use the home as supportive for payment of the loan. If in case you fail to make scheduled mortgage payments, then the bank makes ownership of the home and it will sell to get the amount of the loan.
With a new home construction loan, there will be no home to use as supporting because the home is yet to be constructed. In that case, the bank will have your phrase as guaranty for payment of the loan. It would be good if banks could simply think your word for it, but when hundreds of thousands of dollars and sometimes millions are at stake.
Because of the nature of the home building process, the funding action referring a new home construction loan is more stringent. Once the lender has accepted you to borrow a new home construction loan, a agenda will be outlined again. In this draw schedule, the lender tells how the loan will be disbursed.
Typically, new home structure loans are disbursed in 25% increases. 25% of the loan amount will be given to you by lender,when you complete 25% of your construction. The lender requires an appraisal of the progression to ensure himself that said work has been completed.
You need not make any payments on your new home building loan until or unless the original disbursement has been made. At that moment, only interest payments will be due on the loan and a good news is that you need to pay only for the share of the loan that has been disbursed.
The more you construct the more loan of your’s is disbursed, your monthly payments will be raised and this will happen because each time you are paying interest on a huge amount of money when a disbursement is made. Your entire balance of the new home construction loan will be due,when you complete your construction completely.
Don’t scare. You will have a way to pay this balance well in advance. “How”, you ask? Before you make a approval for a new home structure loan, the lender will ask you first to approve for a mortgage. To find out mortgage approve, the new home construction lender will request a assurance letter from the lender of your mortgage.
Author: Ada DenisThis author has published 101 articles so far.