Building Your Dream: A Guide to Understanding Construction Loans
August 19, 2024
Building your dream home is an exciting venture, but it often comes with a significant financial commitment. Unlike traditional mortgages, which are used to purchase an existing home, construction loans are specifically designed to finance the building of a new property from the ground up. This type of loan has its own unique set of rules and processes.
Like any loan, you’ll need to apply and qualify for a construction loan. A TVFCU mortgage specialist will look at your credit score, income, debt-to-income ratio, and the details of your construction plan, including budget, timeline, and the builder’s credentials. Before applying, consider meeting with a TVFCU loan officer who can help you understand your options and determine the best course of action for your specific situation.
TVFCU offers Construction to Permanent Loans. This loan begins as a construction loan, allowing you to pay for the building process. Once construction is complete, it converts into a permanent mortgage. The major advantage of this loan is that it locks in your interest rate from the start, providing stability and predictability in your payments.
Construction loans are a bit different from traditional home loans in their structure and payment process. A construction loan covers the costs of building a home. These loans are unique in that they are not disbursed as a lump sum. Instead, the funds are released in stages as the construction progresses. A process known as "draws” is contingent on the completion of a specific phase of construction, which is verified through inspections.
As your builder completes different phases of construction, an inspector verifies the work, and funds are released to pay for the completed work. As draws are requested by your builder the amount disbursed increases and your subsequent payment will increase as well. A construction-to-permanent loan will convert into a standard mortgage once the construction is complete.
There are many benefits for constructing your home. A construction loan allows you to build a home tailored to your specifications, giving you the freedom to create your ideal living space.
During construction, you only pay interest on the funds that have been drawn, which can help manage cash flow during the building process.
With a construction-to-permanent loan, you only have to go through one closing, which can save on closing costs and streamline the process. Interested in learning more? Call TVFCU’s Mortgage Department to speak to one of our Loan Officers about your construction loan needs.
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