Construction loans offer several flexible options

It seems like everyone is on the move buying, selling and building. Construc-tion loans have become a more feasible option for many with the current market.

The entire construction loan process has become very streamlined, taking the traditional construction draw loan and the separate end loan, and marrying them together into one easy pro-cess. All of this at a considerable savings to the customer.

A loan of this nature starts with a construction contract between a general contractor and an owner/developer stating the specific duties the general contractor will perform according to blueprints and specifications at a stipulated price and term of payment.

Most investors require the buyer to obtain the services of a builder, as they normally will not allow the homeowner to be the general contractor After the construction contract is agreed upon, the construction loan comes in to play. This is a short-term, interim loan for financing the cost of construction.

The lender advances funds to the builder at periodic intervals as work progresses. The advances are construction loan draws that are partial disbursements of the construction loan based on the schedule of payments in the loan agreement. General contractors are usually allotted eight to 10 draws.

The borrower pays interest only during the construction loan phase. At the time of completion, the loan will transfer to permanent financing. This is a mortgage 1oan that incorporates the interim loans and financing expenses to a fixed rate at the current market rate. Construction loan rates, as well permanent rates, will vary based on the current market. Construction loan rates are obtainable at prime and permanent financing can be locked in prior to completion of construction.

Construction loans can be obtained for a primary residence as well as investment property. It is not necessary to have previously purchased the land as it may be obtained at the time of construction and incorporated into the construction contract and loan.

(Christina Campbell is a residential and construction loan specialist with Farris Mortgage in Springfield.)