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Who Should Bear The Construction Loan, The Owner Or The Builder?

November 28, 2017 5:58 pm

Building a home offers many advantages over buying an already-made house. The process is quite different though, and the financing can be confusing to those who are used to the idea of simply taking out a mortgage. Rather than a mortgage from a typical lender, the builder will often offer to take out the construction loan while the structure is being built. Is this a good idea though? Who should bear the construction loan, the owner or the builder?

The difference between a mortgage and a construction loan

Before going into the details of who should bear this loan, it’s important to know the difference between these two types of loans. The short answer is that a construction loan is a short-term loan taken out to finance the building process, while a mortgage is a long-term loan taken out on “real property.” At the end of the short-term of the construction loan, the loan will be refinanced as a mortgage for the now completed property.

Benefits of the buyer bearing the loan

Because this process has more steps, it can seem overwhelming to the owner. Rather than shop around for a construction loan and then shopping around for a mortgage, builders sometimes simplify this process by taking on the construction loan themselves.

This has some benefits to the homeowner. For one, it shows that the builder is solvent enough to finance a major project like a home. If they were a fly-by-night operation with a history of failed builds, their bank balance and credit wouldn’t make this option available. It also takes a lot of the risk of the build away from the owner and places it on the builder.

The buyer should consider bearing the loan themselves though, for a number of reasons. Having the loan in your name will force you to immediately consider the budget before things get underway. It also makes clear from the beginning that you are the owner of the property and the project. Most importantly, it can avoid the hassle of having to refinance after the project is done when the buyer has to take the take on the loan anyway.

Winslow Homes assists customers to decide the best strategy for their construction loan

For those in Wendell, Knightdale, Durham, Raleigh, Wake Forest, Youngsville, Oxford and the surrounding areas, Winslow Homes is a trusted home builder that is confident enough in our work to offer the option of taking on the loan during the building process. We keep ourselves accountable to produce good work on schedule and are not afraid to offer this to our customers. The risk of the build can rest on our shoulders, not yours if you wish. Then, once it’s done, you’ll simply have to take out a typical mortgage on your new home and property. Give us a call at (919) 556-4700, and we can discuss more details on how to finance your dream home.

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