How to choose the right construction loan

Building your own home can be a better investment than taking a mortgage or renting in the long term. By setting out and customizing your home to suit your aesthetic, you will be able to meet your exact needs. If you are considering this type of home ownership, a construction loan could help finance your project.

A construction loan is a specialized type of loan offered to potential homeowners who are looking to address financing for building or renovating their property. It does not offer the same terms as a regular loan because lenders are expected to make progressive or drawn down payments, where funds are released during each stage of construction.

This loan is divided into five key stages; foundation laying, brickwork and roofing, installation of doors and windows, adding internal fixtures, and making final touches. Lenders arrange an inspection and release funds. Construction loans will usually involve interest repayments until the project is finished, upon which borrowers begin making principal and interest repayments.

If you are looking to take up a construction loan, what should you consider to get the best deal?

Interest rates

Like other loan products, your interest rate will determine the cost of your loan. You should shop around to find affordable interest rates which suit your financial situation. If you have collateral, you could use it to access the best possible rates. However, you need to be wary of an unsustainable loan repayment structure as this can cause you to lose your collateral.

Loan features

If you do not have a sufficient income, you may consider loan products with additional features such as an interest-only option. You can always rent out or sell your property for profit in future, allowing you to pay off your debt and recoup some value. An interest-only option, as well as other loan features, could make your construction loan manageable and affordable.

Your loan to value ratio

Understanding the value of your land and building will enable you to get appropriate loan terms. Lenders will consider these aspects to determine your loan-to-value ratio, which will impact their willingness to offer you a loan, as well as the cumulative amount. They will also determine the value of your building at each stage of inspection. If you assess these aspects and determine your loan-to-value ratio before seeking out a loan, you will be better able to find the right loan deal.

Your deposit

How much do you have set aside? For construction loans, most lenders will require that you deposit a minimum of 10% of the value of your completed property. You need to assess your plans and determine this value to make sure you meet the requirements for a construction loan. For added security and better terms, you may consider laying a 20% deposit. This will help you avoid loan insurance, which can increase the cost of your loan.

Requisite documentation

In order to qualify for a loan, different lenders will impose certain demands. There are specific financial documents that you need to provide in order to qualify for this type of loan. You should review each lender’s specific needs before making an application to ensure you can qualify for a construction loan.

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Things To Watch Out When Renovating Your Home

The home renovation helps in improving the property's net worth. Additionally, you can get a fresh new home with all the comfort you require and meet with all your expectations within your budget. Due to the excitement of renovating your home, you majorly concentrate on the interior design of the house and forget about the other main things. So, here is the list of things to watch out when renovating home.

1. Structural issues

The structural challenges are quite hard to break through. You need to address these issues primarily before dealing with other problems. Start inspecting the windows, doors, and roofing by making sure that they are in good condition. Check for other places if they are broke or prone to cracks. You need to fix these issues to improve the structural strength of the house.

2. Wiring and plumbing systems

Hire the experts to inspect if both the electrical as well as plumbing systems are working properly. The experts resolve the related issues if anything found. The old wirings may lead to many serious issues which need to be replaced to ensure the safety of the residents. You cannot underestimate the never-ending plumbing problems. Make sure to get rid of the annoying plumbing problems while renovating it.

3. Waterproofing

The damages caused by water infiltration can be much severe than any other. It can lead to the growth of mold and mildew which deteriorates the interiors. You need to do waterproofing to avoid wall dampening and other issues which might damage the structural strength of the building.

4. Roofs

If your house has asbestos or any other roofs, you need to inspect its condition before proceeding to the renovation work. The roofing gets easily damaged as they get exposed to extreme weather condition throughout the year.  You might need to hire a roofer to conduct the inspection as well as to repair or replace any part of it.

5. Termites

The termites are a major headache for the houses that hold many wooden objects. It might be almirah, cupboard, doors, flooring or others. The termites damage the complete wooden material and weaken its structural strength. You need to hire pest services to get rid of these harmful termites.