Why Construction Loans Are Often Suggested By Mortgage Brokers
A Brief Introduction to Refinancing
If you have different loans running from different lenders, you may be tempted to structure a deal with a new lender and roll all your debt into one mortgage. While conceptually the idea may look good, you would need to consider various other aspects before you attempt such debt consolidation.
First, you would need to consider your income vs. your existing debt. Obviously, the more money you make and the less debt that you have, the more you can afford on a mortgage. Second, your credit rating is going to play an important part in deciding how much additional mortgage you can take. The higher your credit score is, the lower your interest rate can be, allowing you to afford a bigger mortgage loan. Third, if you wish to go for a conventional mortgage in order to consolidate your debt, you would be altering the loan-to-value ratio of the deal to add in your existing debt and therefore, finding a lender to write such a loan may be extremely difficult. Hence, you may need to evaluate other options to meet your objectives. Before you take a decision, the best thing for you to do would be to browse through the various mortgage loan articles, and consult various
mortgage brokers in order to gain a better understanding of the different options available to you.
One of the pieces of advice that mortgage brokers would possibly give you is to go in for a construction loan. The advantage of a construction loan is that you may be able to use some of the construction funds to retire the existing debt. But it is important to note that if paying for non-construction expenses is contrary to your loan agreement, the bank may stop funding the construction of your house if you try to slip through a payment to your existing creditor.
When evaluating construction loans, the options before you can be to choose between construction-only loans and construction-to-permanent loans. Construction-only loans are short-terms loans that are designed to pay for the construction of the home and which must be repaid after construction is completed. On the other hand, construction-to-permanent loans start as a construction loan but convert to mortgage loans automatically after the home construction is complete. Whichever type of loan you finally choose, mortgage broker help can certainly come in handy when you take your decision.
The key advantage of using a construction-only loan would be that it would provide you with flexibility to finance your completed home with a wide variety of mortgage loan products, giving you the freedom to shop around for the best mortgage interest rates and terms across the market. But
good mortgage brokers are more likely to suggest to you a construction-to-permanent loan that is more popular for two reasons.
First, you will find this type of loan to be very convenient since you would not need to worry about finding a mortgage loan to finance the property and pay back your separate construction loan. Additionally, you would also not need to pay for two loan closings.
Second, these loans are also preferred by lenders since they allow the same lender to keep control and retain the profits of both the construction loan and the post-construction mortgage. Thus, these loans are often more profitable for lenders than construction-only loans.
If you are looking for debt consolidation, it is always advisable that you do your research and evaluate all the options before taking your decision. With today's real estate market, it's important to find a mortgage loan that's ideal for you, your finances, and your specific needs.
by: Ask Bill
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