Important Points To Consider

Here are some important point, u need to know about construction loan:

• Construction loans are usually variable-rate loans priced at a spread to the prime rate or some other short-term interest rate.
• Construction loans typically require interest-only payments during construction and become due upon completion. Completion for homeowners means that the house has its certificate of occupancy.
• Another point to note is how much of the project cost the lender is willing to lend. If you already own the land, then that can be considered as equity on the construction loan.
• Depending on your view on interest rate trends, you could also purchase a rate-lock agreement valid through the expected completion of the construction. 
• Regarding the end loan there are a few important points to note.
1. Find out how long your rate will be locked for. Often times, the rate can be locked for as long as nine months, or as short as three months. Be sure and allow enough time to get your house completed, and build in a cushion should and unforeseen issues arise.
2. Whether or not there is a float down option, and what it will cost. If you decided to lock your rate and mortgage rates fall during construction, you need to make sure that you have the ability to reduce your rate without refinancing after your home is completed.
• Many homeowners use construction-to-permanent financing programs where the construction loan is converted to a mortgage loan after the certificate of occupancy is issued. The advantage is that you only have to have one application and one closing.
• construction loan, unlike a mortgage, isn't meant to be around for a long time. You should take out a mortgage to pay off the construction loan.  A first mortgage is a better choice than a home equity loan because you can borrow for longer periods, generally at a lower interest rate.
• Interest on construction loans is deductible as soon as construction begins, for a period up to 24 months, provided that at the end of the period you occupy the house as your residence.
• In addition to points and closing costs, lenders charge a construction fee to cover their costs in administering the loan.

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