Constructing your own home will be cheaper than buying a similar home available in the market. All it requires is a construction loan that includes the right financing, good plans, and experienced contractors.
In the recent past, the prime rate for the region was high, and it caused the construction loans to be costly. People were not comfortable paying lots of money to borrow funds, therefore they financed the construction of their homes with credit lines on existing homes or with their cash savings. They would face problems in case they ran out of cash or if the budget was more. Construction loans are now available with low rates that is why many people are turning to them. Construction loans are economical, and they ensure they are completed on a budget or on time due to the available in-built protection.
Buying a home available in the market will be expensive compared to constructing the same kind of home despite the home values dropping. This comprises of buying a “tear down” or a lot and constructing it from the start and improving the home or a bought property from foreclosure. It is not advisable to use up your savings for such projects instead it is better to borrow money. Leverage boosts your ROI as most real investors know and you can invest elsewhere. In construction loans, only a limited funds amount is injected into the project, and the loan finances the rest. If a construction loan finances the building of your home, your home is a great investment.
Your building project remains within the set time frame and within the expected budget through construction loans. Initially, the bank offering the construction loan makes sure your project is in the hands of a recognized builder. Some banks require that you include the contractor’s package for approval along with the construction application being made. In case your builder has previous lawsuits, complaints to the licensing board, bad credit all this will be captured by the bank and your builder will be rejected. Additionally, the financing bank will monitor the construction process from when it starts to its completion. The approved contractor will be expected to make requests for more finances after they complete a given part of the project. Banks will from time to time, visit the site to make sure the job is satisfactorily being done.
Due diligence is done by the bank offering the loan on the project and the builder. When some loans are moved to permanent storage, this is known as one time close, and it happens after the construction phase is completed.