Unless you plan to pay cash for your custom home, it will typically be required that you obtain a construction loan to cover the cost of the labor and materials that will be used. This type of loan can 
also be used for purchasing the land that your home will be placed on, if you do not already have a location.
While many people may be familiar with how a regular mortgage works, getting a construction loan put into place can have differing requirements, as well as different forms of repayment alternatives.
What to Know About Construction Loans
First, construction loans can be a bit more difficult to find than a regular mortgage. You may be able to go through your local bank. However, in many cases, you may need to shop around for this type of financing.
There is also more than just one kind of construction loan. These include a “one-time close” and a “two-time close” option. With all types of construction loans, the funds will be disbursed by the bank or lender, based upon a pre-established schedule. For example, a portion of the funds may be paid out when the foundation of the home is completed, some when the frame is up, and so on.
The one-time close construction is typically used most often. This type of financing will “wrap” the mortgage and the construction loan all into just one loan, which can allow you to make just one monthly payment going forward.
A two-time close construction loan will instead offer shorter-term financing during the home building process, and once the home is complete, you would then close on the home mortgage. Because of the two separate loan closings, a two-time close loan will usually require that closing costs be paid twice.
When you go to apply for a construction loan, both you and your contractor will have to be approved. This is because the bank or lender will want assurance that the contractor you have chosen is financially stable enough to complete the home on budget.
Working with a well established home builder can help in easing the concern about the building process running over its allotted schedule – and its anticipated costs. If you’re considering the building of a custom home in the Central Florida area, Contact Us for more information.
