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Equity Based Construction Loans

January 20, 2010
Whether you are an individual, corporation, or in partnership with others, you can successfully acquire a construction loan. It is so easy to base it on equity, which will save you money in the long run, provided you keep your end of the bargain. Keeping your end of the bargain means that you do your part as the builder, keeping within your budget and your time frame. You have to face the consequences if you fail to do your part. You could lose all the work you have done so far or you could end up paying a lot more than you had planned to.

Building your own house is usually a lot cheaper than trying to buy a decent one that is on the market these days. If you have already acquired the land where you plan to do your building, then the lender will use the land as the basis for an equity construction loan. Everything circles around how much a lender is going to lend you to begin and complete your project. You will have to give the lender each detail that surrounds your building project from start to finish. That's why they call construction loans, story loans. Projects can range from a vacation home to something with multiple units.

An equity loan is basically a mortgage that is placed on the real estate, with a much smaller interest rate. The reason for this is because an equity loan is a secured loan. If you default, the your project becomes the property of the one who lent you the construction loan. Normally, while you are in the process of building, you are paying very small amounts at different intervals in the construction process. When the project is completed, the borrower either sells or rents what he has completed. Therefore, they are able to make a profit on the loan or if you are the homeowner, you can then choose what is known as the construction-to-permanent financing. This means the project is completed and fit for occupancy and the construction loan is then converted to a mortgage loan. This enables you to have one loan only throughout the entire process of building.

Please make the articles describing equity requirements, down payments etc