In 2019 alone, there were 11.4 million U.S. construction workers! That’s an increase of 25% since 2011.
Whether you’re getting started in construction or have been doing it for a while, you might consider construction loans. You might wonder about the different types of construction loans and which is best. Read this guide on the various types of loans to find the perfect fit today!
How Construction Loans Work
Whether you’re in construction or building additions to your home, a construction loan could help. You can click for more information about construction loans.
For the land you own, you could use equity toward the down payment of your construction loan. Once spec construction loans end, you can refinance them into a permanent mortgage.
They work similarly to a line of credit. Interest is based on the amount you borrow to complete each portion. Some loans might require you to pay the entire portion before project completion.
1. Construction Mortgage Loans
This spec construction loan allows you to finance the purchase of land. It can also be constructing a home on land you own.
The lender pays a portion of the completion costs, and you’ll pay the rest. Most construction loans are short-term since they reflect the time it could take to build the project.
2. Commercial Construction Loans
Whether you’re building a multi-unit, high-rise, multi-family home, or an apartment building, you’ll want a commercial construction loan. These are for office buildings too.
Most lenders will expect the developer to carry most of the risk and cost of the project. You’ll need a large sum of money to fund this construction.
3. Construction-Only Loans
Construction-only loans are for when you need money to complete building a home. You’ll need to obtain a mortgage at the end or pay the loan in full (normally one year or less).
The borrower will be responsible for interest payments on the money drawn. They tend to be more expensive because you’ll have a permanent mortgage after.
4. Renovation Loan
If you buy a fixer-up and want to invest in renovation, this is a common loan. They’ll pay the cost of buying a home and major renovations. It’s based on the value of the home after renovations.
5. Owner – Builder Loan
This is for homeowners who act as their own general contractors. It’s great for those with experience building homes. They’re normally only for those with a contractor’s license or who have experience as a home builder.
6. End Loan
This is the homeowner’s mortgage when the property is built. Some lenders offer a construction-to-permanent loan; you’ll have a single loan closing. Others will require you to have an end loan.
Exploring the Different Types of Construction Loans
This guide should have you better understand the different types of construction loans. Take your time deciding which is best for you and speak with a lender.
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