Finding a Construction Loan Lender in New Jersey
Would you like to build a home? How exciting! However, for many, the anticipation of having a home built for you is made somewhat worrisome by the unfamiliarity of gaining financing for this type of endeavor. Even if you have purchased a home in the past, you may be still confused on how Newark, NJ construction loans are different. Here are the basics of home construction loans for when you’re ready to get a mortgage for building your next home:
Construction loan lenders in New Jersey offer two main types of home construction loans:
Construction-to-permanent: You close the loan only once with a construction-to-permanent loan, which reduces the fees you pay. You borrow this money to pay for construction. During the construction phase, you pay interest only on the outstanding balance. When you move in, the lender converts the loan balance into a permanent mortgage. It’s two loans in one! These type of construction-to-permanent loans are available with fixed-rate or adjustable-rate mortgages. Buyers are charged interest on funds as they are drawn to build during construction. The permanent mortgage is like any other mortgage after that. You can choose a fixed-rate or an adjustable-rate loan, and specify the loan’s term, typically either 15 or 30 years.
Stand-alone construction: Your first loan pays for construction. When it’s time to move in, you get a mortgage to pay off the construction debt. This is different because it is two separate loans. A stand-alone construction loan could be worthwhile if it allows a smaller down payment. That can be a major advantage if you already own a home and you don’t have much cash now for a down payment, but you will have more cash after you sell your current house and you can live in your current home while your next home is under construction. However, there are a few drawbacks to this type of loan. You can’t lock a maximum mortgage rate when you get a stand-alone construction loan. If mortgage rates rise during construction, you might have to pay a higher-than-expected interest rate on the permanent loan.
Building a new home is a big commitment requiring time and money, so it is best to do your research and find the right type of loan for you. Of course, it is also very exciting because it is the start to your dream of building the exact home you want finally coming to fruition.
