Real estate construction projects involve huge expenses, and most of these require construction loans. Many people find it practical not to put their savings in the line and consider it better to obtain loans from a lender or lending institution for the completion of the real estate properties. With construction loans, properties can be built within specific timelines and the entire expense can be kept water-tight. There are construction loans available for funding commercial as well as residential construction. Lending institutions have designed different kinds of loans keeping the requirements of borrowers in consideration. In the industry, Construction loans can be categorized broadly into two types.
Commercial Construction Loans
These can be utilized for the construction of office buildings, shopping malls and restaurants and any commercial property which can be used for any commercial purpose. Such loans can be utilized for the buying a new real estate property, expanding a structure that is already existing, renovating a building which exists already, constructing a structure from scratch and more. These loans are offered by lending institutions such as U.S. Small Business Administration (SBA), credit unions and commercial banks. Acquisition and Development Loan, Mini-Perm Loan, Bridge Loan, Take-out Loan, Construction Interim Loan, Joint Venture Loan and Real Estate Purchase Loan are some of the most popular commercial construction loans which are available today.
Residential Construction Loans
These are used for erecting residential buildings or properties. Such kinds of loans are usually categorized into two types – Construction-Only Loan and Construction-to-Permanent Mortgage Loan. Construction-Only Loan is offered just for a maximum time of one year, and is offered in the form of installments. The interest on every successive installment is more compared to the interest amount accumulated on the installment before. When the construction period ends, a mortgage is taken by the homeowner or builder on the home to get the construction loan paid off.
In a Construction-to-Permanent Mortgage Loan, the construction-only loan is blended with a mortgage over the completed home. But a varied interest rate is charged at the time of construction and even when the construction is over. In this type of loan, the builder can be compelled to pay an amount as penalty in case the period of construction spans more than a year. Although only one closing expense has to be borne by the borrower, he will be compelled to get the construction loan money and borrow the mortgage amount from that lender itself.