We know that both a mortgage and a home construction loan have upsides and downsides that you may want to consider before making a final decision.
But before that, we need to be aware of what these two loans exactly imply. So, a mortgage, often known as the home loan, is a sort of loan in which the entire amount is issued to the borrower at once, after which the borrower purchases an existing property and begins making payments on the loan over a period of 20 to 30 years, depending on the contract or the lender.
In contrast, home construction loans work a bit differently. It is a type of financing for the complete step-by-step construction of a house in which the loan amount is disbursed in installments over time.
In our opinion, when it comes to home construction loans. There are several advantages that you can count on like you can design your home exactly how you want it in exchange for higher interest rates and a shorter loan term. Moreover, for Home Construction Loans in Dallas, Texas, firstly, you need to approve the complete architecture and the construction plan from the lender so that he knows his money is in safe hands.
Mortgages And Home Construction
There are various other differences between mortgages and home construction loans that we must look into.
- You should keep in mind that a larger sum of money is required as a down payment for a construction loan which is approximately 25% or more (usually depends on the approval). Whereas for mortgages, a down payment of 15 percent to 20 percent is required.
- As far as Home construction loans are concerned, these are short-term contracts that typically last for one year or less. On the other hand, the duration of mortgage contracts ranges from five to thirty years.
- In the case of construction loans, only the amount of the loan that was used during the construction is subject to interest charges. For instance, if the entire amount is not used in construction. The borrower will not be required to pay interest on that particular amount. Moreover, Mortgages charge interest on the total amount of the loan.
- If you are looking forward to acquiring the land, you need to go for construction loans. These loans can provide you with upfront financing for the land you need for building your dream home. Generally, it is observed that mortgages do not cover the cost of land acquisitions.
- Home construction loans often have higher interest rates. Ranging from 11 to 14 percent, than mortgages, which have interest rates ranging from 8 to 10 percent.
- Another important thing to keep in mind is that the majority of construction loans. Will not penalize you if you pay off the balance of the loan early. Whereas, Mortgages may occasionally impose penalties for paying off the loan early (varies from lender to lender).
Sum up
A detailed look into these pointers will eliminate any possible confusion existing between a mortgage and a construction loan. Each of these loans comes with several features and benefits that you can adjust according to your needs and wants.
The USDA, also known as The U.S. Department of Agriculture, offers several types of guaranteed loans to buyers who want to buy or repair a property in a rural area in Texas.
The sole purpose of these loans is to facilitate buyers who otherwise. Cannot invest in expensive properties or continue to live in their current homes due to deteriorating property conditions.
While you can also apply for an FHA loan to purchase property in rural areas. The USDA loans are usually more affordable and don’t typically require down payments.
On the other hand, FHA loans have no income restrictions, hence making it easier for people with low income to buy property in rural areas. All in all, both these options have their own pros and cons, and only the right mortgage lender can guide you on which one suits your needs the best.
We are a 25-year old Dallas based mortgage company. That relieves Texas home buyers of the stressful process of finding, applying for and qualifying for a loan. We will find the best loan to fit you. Regardless of your credit situation, our mortgage experts will do everything possible to get your loan closed.
ou can also apply for USDA House Repair Loans in case you want to make needed repairs. The maximum loan limit is $20,000, and you have upto 20-years to pay back your loan.
