Friday, July 10, 2015

Advantages Of Construction Contract Financing

By Eula Clarke

Building loans are financial loans offered by most banks to allow their customers to pay for the building cost of their houses even when they do not have enough money to do that. There are two reasons that make you qualify to apply for this construction contract financing, the first one is if you are building a new house from the ground up and if you are expanding an already existing house.

This loan consists of two steps. In the first step, the lender offers the loan to the building owner who can withdraw the money at will depending on the different stages of building. This means that the recipient can comfortably handle all the charges of the construction since there is money from where they can withdraw.

During the second step, the loan changes state to a permanent loan and the entire sum of the balance is payable with the agreed upon interest rate. This allows the home owner to pay less interest during the construction period. The benefit here to the bank is that the recipient will be encouraged to pay faster in order to avoid interest.

The other loan plan that is involved in these kinds of loan apart from the two step one is the no-interest loan. This plan allows the house owner to take up a loan from the financial institution, they start the building process, then once the entire construction is completed, the loan interest is calculated at that point and the customer can start making the payments.

One reason why the no-interest loan is recommended is the fact that the bank will charge you for only one closing fee. The closing fee is an amount of money that lenders charge their customers after they have cleared loans. This fee is supposed to cater for the information processing and the payments processing. For the first plan you have to pay this fee twice since technically you had two loans, the construction and the permanent.

Another advantage of this second mode of taking up a building loan is that your interest starts to increase when your building is finished. As opposed to the two step method where the interest is rising even during the period of building. This helps you save a lot since if your building takes a long time while using the first kind of loan, you will have to pay much more interest but in the no-interest building loan, there is no interest during the time of building.

One great advantage of construction funding is that you as the recipient of the loan will be able to have all the funds you need readily available during the entire building period. This means that builders payments and money for supplies will be there. The effect of this this availability of funds is that the building process will be quicker since there are no financial holdups.

There are very many ways you could look at these kinds of loans. You could see the bright side which is the convenience that they bring. You could also look at the other side of the coin which is the interests and bank payments you incur.

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