If you plan to buy or build a new home, you should know about new construction loans. A new construction loan is a type of loan that allows a borrower to finance the construction of a new home. Building materials, labor costs, permits, and major appliances are all covered by this loan.

If you’re hesitant about getting one, here are some of the advantages of getting a new construction loan:

4 Advantages of Getting a New Construction Loan

You can finance up to 90 percent of the home’s value

First, you can finance up to 90 percent of the home’s value. That allows you to invest substantially in the property while limiting the upfront costs.

You can enjoy terms of up to one year

The terms of your loan can extend up to one year. With a whole year, you have plenty of time to make payments and complete the project. The borrower typically only needs to make interest payments during construction. Once the project is complete, most lenders offer the option to roll the loan over into a conventional mortgage.

The loan is made directly to you

You’ll receive a loan directly from a financial institution rather than a builder or contractor. Some builders offer to finance, but it may come with conditions. With bank financing, you’ll have more control over the project. It also lets you pay contractors directly instead of using an escrow account provided by another lender.

You only have to pay closing costs once

The most crucial benefit of getting a construction loan is that it only requires one closing. With a conventional loan, you would have two closings: one for the construction loan and another for the mortgage. If you can roll the construction loan into a mortgage, it could reduce costs.

The Bottom Line

Getting a new construction loan could be one of the smartest financial moves. If you’re thinking of financing construction, remember it’s an expensive endeavor. It would be best to examine all of the options before choosing one. Hopefully, this article helps you in making an informed decision.

If you’re buying in a new development, it’s essential to know that the builder’s sales associates do not represent you. Having an experienced professional to guide you through the process can be a way to protect your interests.  

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