Construction Loans

What Is A Construction Loan?

A construction loan is a short-term loan that covers only the costs of custom home building. Once the home is built, the prospective occupant must apply for a mortgage to pay for the completed home.

However, there are several other loans available when it comes to home building, including ground-up building to completely gutting a current home so you can renovate. Construction can help if:

  • You have a plot of land and need to start from scratch

  • You have a teardown situation where the current home has no redeeming value in your eyes

  • You want to keep the bones of the structure but change pretty much everything inside.

Construction-Only Loan

This type of loan is short-term and is usually issued for a year. It is meant to cover only the actual construction period. Like many lenders, Coldesina Capital does not offer this type of loan. Why? With so many variables like the builder's cooperation, getting approvals from local municipalities, and more, these are considered higher-risk loans.

This means construction-only loans are harder to qualify for, and the interest rates will likely be higher than a traditional loan. In addition, if you decide to go this route, you will have to pay a second set of loan fees when you apply for a traditional mortgage.

Construction-To-Permanent Loan

This is a type of loan that prospective custom home builders can apply for. Much like construction-only loans, construction-to-permanent loans are one-time loans that fund construction but then convert into a permanent mortgage. 

During the construction phase, borrowers make interest-only payments. It is important to note that these types of loans can be more expensive than traditional mortgages. Therefore, if you decide to go this direction, be sure to shop around, compare rates and find the best deal before you pull the trigger.

Renovation Loan

Renovation loans, also known as 203(k) loans, can be used for home renovation and are insured by the Federal Housing Administration (FHA). Coldesina Capital doesn't offer this type of loan. This allows borrowers to purchase and renovate their new home while still making one monthly payment to cover both costs. 

Conventional loan borrowers may qualify for these loans through Fannie Mae (HomeStyle Renovation) and Freddie Mac (CHOICE Renovation).

Coldesina Capital offers a cash-out refinance, which can be a different path to getting home renovations done. With a cash-out refinance, you take a portion of your equity and add what you have taken out onto your new mortgage principal. 

Other options include a home equity loan or a home equity line of credit (HELOC). No matter what you want to change about your home, there are plenty of options to get the financing you need to start swinging that sledgehammer.

Owner-Builder Loan

Usually, when you build a home, a general contractor essentially acts as the quarterback of the whole operation. The contract makes sure the framing people, the tile people, the wood floor people, the painters, etc., all work in coordination to get your home completed (ideally on time and on a budget).

However, some prospective home builders wish to act as their own general contractors, and some banks offer owner-builder loans just for this purpose. These types of loans generally require the borrower to demonstrate through experience, education, and licensing that you have the needed expertise to oversee the home’s construction. Sorry, no newbies allowed here.

End Loan

An end loan is a traditional mortgage that a home buyer or home builder (if you’re building your own home) can apply for after completion of the home. Unlike some of the other construction loans previously discussed, Coldesina Capital offers this type of loan.

You can get an end loan if construction is complete on the home. One good aspect of an end loan is that the mortgage application for a newly constructed home is the same as it is for any other home. Less complicated is always appreciated when it comes to financing applications.