Construction Loan

[kells]

Hi - I'm currently thinking of buying a cheaper home and adding on to it. I would have to get a construction loan to complete the remodel and I was just wondering how they work? Is it just like a regular loan or do you take a draw on the money once 1 section is completed? And when do you have to start paying it back?

Thanks,
Kells

[Rich]

It really depends on that financial institute chosen for the loan. For new construction they require 20% unless you have excellent credit and other resources for collateral. With a remodel you may be able to use the house itself to use as collateral - it depends on the mortgage... if it appraises for more than the mortgage and the remodel loan it'll probably work. They will sometimes state that all the work must be completed within a year and must begin repayment in 6 months.. again is just depends on the terms of the loan.
For the payback, again it depends on the institute you end up going with. They will lay out how money is withdrawn to pay for everything.
If the home does appraise well you might want to take a second mortgage out on it - then you get the money right away and don't have to worry about getting draws. The downside is you need to start paying back within 45 days in most cases.

[rebobinar]

You might actually be able to get an FHA rehab loan for the property. They loan you enough to do the addition, so you could get a loan for %125 of the price - or something like that. check out www.artofcredit.com mortgage forums for some good advice.

You actually can get a 100% construction loan without excellent credit. I'm working on that right now! They usually issue draws at specific stages of building. You either have an interest reserve built into the loan so you pay nothing till completion, but the interest still acrues and gets tacked on the end of the loan. Or, you make interest only payments on the amount drawn to date.

Robin