A construction home loan is a loan that has been created specifically for those who build their own homes. It takes into consideration the fact that the payments that need to be made to the suppliers are phased out.
The five phases of building a house, land purchase, flooring, roof, lock up and final, mark the five landmark phases where the builder can make progressive draws. The total construction home loan amount is decided at the very beginning and it is only the withdrawal of the construction home loan amount that is phased out.
The advantage of opting for a construction home loan is that the interest that is charged to you is based on the amount that you have withdrawn and not the total home loan amount that has been approved. Once the total amount is withdrawn, a regular rate of interest is charged on the full amount. You will be required to mention the specific type of home loan that you would like to convert to once the entire construction is over or once the entire monies are withdrawn.
The total amount of the construction loan that is allowed depends on the land value and the cost of construction. In some cases though, some lenders calculate the construction home loan value based on the estimated resale value of the constructed house.
If you are opting for a construction home loan, then you should be ready for inspection when you apply for specific withdrawals since the lender might want to confirm the stage at which the construction has reached.
Mel writes about construction home loans, fixed rate home loans among other finance topics.
