Financing your New Home

A construction loan may be provided by your same mortgage lender, but it doesn’t have to be. This loan is a line of credit with a fixed maximum amount that you may borrow. You draw the funds gradually, to pay construction costs as you go along. You pay interest only on the money that you have drawn. There are three basic types of construction loans. One-Time Close This is the simplest type of loan because it is “all in one.” A construction loan and mortgage is combined into one closing, with one lender, at one interest rate. Note Modification Similar to the one-time close, but may have different rates between the construction loan and the permanent financing. Also, the construction loan rate could be fixed, with an adjustable rate on the permanent loan. Two-Time Close With this type of financing, the construction loan and the mortgage are two separate loans, each with its’ own closing. The two-time has higher upfront cost, but it provides more flexibility. Again, there is no right answer that fits all situations. Consultation with your lender will provide the choice for you.