Most people, when thinking about buying a new house, think in terms of going to neighborhoods they might want to live in, looking at existing homes, and then deciding upon this one or that one, depending upon price, space, condition, and whatever other factors might go into their home-buying decision. Other people take a more-outside-the-box approach and decide to build their dream home from the ground up. Not by themselves, usually, but by hiring a construction contractor and taking out a construction loan.
So how does that work, exactly? The new construction process can be complicated with a lot of players involved, so you want to seek help from a Charleston construction loan lawyer at Weeks & Irvine, LLC.
A construction loan is a bit like a mortgage with a decidedly different approach. While a home mortgage and a construction loan both result in you having a new home, the resemblance between the two largely ends there. A construction loan is intended to finance the construction of your new home. The loan is for a shorter term, at a higher interest rate – you will usually refinance your construction loan with a conventional mortgage once your home is actually complete and can serve as collateral, unless you pay for it in full, depending on your circumstances. Typically, when the construction loan is made, the lender will use the property along with any materials, fixtures, etc. as collateral for the loan since the there is no house on the property. The loan is then disbursed in draws at different phases of construction. Because of that, you can count on your finances and building plans being carefully scrutinized by your lender.
Unlike a mortgage, a construction loan is paid out differently. While a mortgage is a lump sum that pays for your purchase of a house, a construction loan is paid out in stages. At different points in the construction of the home, the builder is given what is called a draw against the loan amount to fund the next stage of construction, such as pouring the foundation, framing the house, roofing, interior finishing, and the like. At each stage, the lender likely will require an inspection of the work already done before issuing another draw for the next stage.
Choosing your contractor is critical with a construction loan. The builder you choose can have an impact on your ability to obtain the loan to begin with. You should choose a reputable builder based on recommendations from professional organizations, friends, and other sources. Check the builder’s history to make sure there are no legal issues over past problems. Make sure the builder has all appropriate bonds, licenses, a good Better Business Bureau rating, is recommended by the National Association of Home Builders, and has good references.
Building a home is a big decision – at least as big as the decision to purchase an existing home. The vision is yours, but the process can seem alien to you. You should talk to a professional. Contact the attorneys of Weeks & Irvine, LLC. They are intimately familiar with South Carolina real estate processes and are ready to help you with obtaining and managing your construction loan.