Construction loan as mortgage?

Is a construction loan considered a mortgage? The short answer is […]

Construction loan as mortgage?

Posted on: November 06, 2020

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Is a construction loan considered a mortgage? The short answer is no.  A construction loan is different from a mortgage but there is a way to make this as one and the same loan - One-time close loan. Let us first understand what a construction loan is. So you want to build your home, buy the land, choose somebody who will build for you, and have the plans approved. Since you don't have enough cash from buying the land to finishing the building, you will apply for a loan - a construction loan. A construction loan is short term. This is only applicable as you build the house. Because this is a loan that is classified as a relatively "higher risk loan" the interest is a bit higher than the traditional mortgage loans.  Once you are done with the construction, you are  supposed to pay off the loan, or apply for a mortgage using your property as collateral.  And then you apply for a mortgage. A home mortgage is a long-term loan between three to 30 years. This is a service that is done by financial institutions like banks or mortgage companies.  One of the benefits of a mortage is its lower interest rate. The collateral for your home mortgage is your home, so the lender keeps the title of the property and once your mortgage is paid off, the title is given back to you. Applying for a construction loan and then a home mortgage can be tedious because you need to have two applications, two sets of interest rates and you need to deal with your creditors separately. You can make your life easier by applying for a one-time close construction to permanent loan. One-time close, or sometimes called as Single close construction loans, gives you a better deal because you only deal with one company for your construction and mortgage needs. One benefit is that you will have a better deal, especially when it comes to interest rates. If you need help with which is a better option for you, let us know and we would be more than happy to assist you.

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