It’s important to understand the pros and cons of construction loans before you apply for one. This type of loan can be great for some individuals but disastrous or unattainable for others. Here are some of the biggest pros and cons of construction loans.
Pro: Your Builder Can Get the Loan
This is one of the biggest advantages of construction loans. Established builders get construction loans all the time, and when you ask your builder to carry the loan, it’s more likely that the project will be finished on time. A strict schedule is important to you, the future homeowner, and the lender.
Con: The Money Will Come in Stages
If your builder won’t agree to carry the loan, then the money from the lender will likely come in spurts as the home is being built. While the home is in the midst of construction, you’ll have to make interest payments on the construction loan. Interest rates for construction loans are generally higher than interest rates for a traditional mortgage.
Pro: You’ll Get Your Dream Home
When you get a construction loan and hire a builder, you’re building your dream home. Most homes are pre-built and owners settle for something “close enough.” If you have all the right ingredients to qualify for a construction loan, then you can go all out and customize your home to meet your every need. You’ve always wanted a library with large windows in a sunny area of your home? No problem, if you have a construction loan! Your builder will be able to craft something spectacular.
Con: Construction Loans Come With a Lot of Work
You begin preparing for construction loans by working on your credit score and saving up for a sizable down payment. Those two factors on their own require a lot of work, but if you’re approved for the loan, get ready for more work. You’ll have to be present for a lot of the construction to make sure that things are going well and that you’re getting everything you pay for. Builders often come up with unexpected expenses that will increase the price of your project, so you’ll probably need to negotiate and make sure the budget stays on track.
All things considered, if you’re an established individual who has always wanted to build the perfect home on acreage, construction loans come with many more pros than cons. However, it’s always best to be aware of potential setbacks that come with building a home.