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As opposed to a home equity loan, which bases the loan amount on the existing value of your home, this type of loan uses the 'after improved' value. It can be a plus for the homeowner who needs more money to fund a home improvement project. The down side is that the loan is doled out to the contractor in payments determined by a bank assigned inspector after a portion of the work has been completed. This basically puts the contractor in the position of funding the project and getting reimbursed by the bank.
As a contractor for over 26 years, I have performed 1 contract under these terms and will never do so again. This type of situation leaves the contractor to bare the weight of the entire project until reimbursed. Unfortunately, in my case, the bank convinced me that we would be reimbursed with 2 days of each inspection. In reality, we never saw a check earlier than 2 weeks after an inspection. Note: M&T Bank
For wealthy contractors, this would not be a problem. But, in the real world, most of us don't make a great deal of money beyond our means and financing a homeowner's remodeling project...especially a large one, isn't possible.
The downside for the homeowner in this case is the repercussions. As I stated, a very prosperous firm would have no difficulty managing a construction loan. But, if your contractor is like most, it will be a great burden and the job performance could fail. If he doesn't have money to buy the proper materials, he might skimp or substitute inferior ones. If he doesn't pay his employees or subcontractors, they may stop work, perform poorly or sue you for the money (and institute a mechanic's lien on your home).
In summary, you can get a bigger loan because it's based on the greater value of your home. But, the only contractors that should assume such a project are ones who have the capital to carry the expenses until they are reimbursed by the bank.
Wiki User
∙ 16y ago
Jesse Burton
is a construction loan in the best interest of the buyer and what does the bank require from the buyer
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How does a bridge loan work?
how does a construction loan work to bridge it to a VA. loan?
How do construction loans work?
Construction loans are for when a house (or other structure) is being built. The contractor can take money out on a loan to get materials needed for construction and also do not have to pay the loan back right away.
What is construction loan?
a construction loan is a loan of money that is given to the needer to build building structures.
Are construction to perm loans securitized?
Yes, they can be securitized but generally not until the construction is completed and the loan has been converted from a construction loan to a permanent loan.
What information must you provide when applying for a home construction loan?
Information you must provide when applying for a home construction loan is monetary information about debts, assets, and personal income. After submitting information, you may or may not qualify for a home construction loan.
How does a bridge loan work?
how does a construction loan work to bridge it to a VA. loan?
How do construction loans work?
Construction loans are for when a house (or other structure) is being built. The contractor can take money out on a loan to get materials needed for construction and also do not have to pay the loan back right away.
What is construction loan?
a construction loan is a loan of money that is given to the needer to build building structures.
Are construction to perm loans securitized?
Yes, they can be securitized but generally not until the construction is completed and the loan has been converted from a construction loan to a permanent loan.
What is the purpose of a construction loan broker?
A construction loan broker is an organization that assists a construction company to temporarily cover the cost of obtaining the plot of land for a future house. An example of a construction loan company is BB&T Mortgage Company.
How do I get a construction loan?
In order to get funding for a construction loan you will need to have good credit and a lengthy work history. You will want to call quite a few different banks and apply and see what you are pre-approved for. Once you get those, you can decided what your best option is.
Where can I apply for a construction mortgage loan in Detroit, MI?
Construction Loan Company, Inc. 1700 W Highland, Ste 100 Howell MI 48843 is the best place for the construction mortgage loan in Detroit
What information must you provide when applying for a home construction loan?
Information you must provide when applying for a home construction loan is monetary information about debts, assets, and personal income. After submitting information, you may or may not qualify for a home construction loan.
How do you go about obtaining a construction loan?
easy
Can a construction loan include the cost of the land?
I think construction loan includes the cost of the land,it's better to consult real estate person
Why do construction workers take loan?
they take loan so that they can meet their expense as they are exploited by the people who they work for and are give less wages so in order to live a gud life they take loan which instead traps them into a vicious cycle of debts
Will a foreclosure on a construction loan have the same effect as foreclosure on an existing home?
Short Answer: Yes. You signed paperwork on the construction loan that would be very similar to the final loan. They will foreclose and sell the house at a sheriff's sale.
