How to Build Your Dream Home with a Single Construction Loan in Princeton NJ

By
Mortgage and Lending with TD Bank 466521

How to Buy and Build Your Dream Home with a Single Construction Loan in Princeton NJ!!

The tides are definitely changing. The appeal of construction loans is on the rise big time, as the demand for single family home rising and invertor levels are so low. Builders are giving homeowners a perk of building their dream home with a single mortgage for the whole process. With a construction loan, home owners can not only add luxurious amenities like swimming pools but also transform their properties onto stunning homes in the design they choose. 

So, What Exactly is a Construction Loan?

Construction loans are short term financing options that can cover the building costs while the construction in the home is in progress. The demand for these loans is steadily increasing, particularly because of the lack of inventory in most markets today. Instead of choosing from the limited number of choices, a lot of people go for the more viable option of building their home and enhancing its value.

Why is the Demand for Construction Loans Rising? 

Mostly when homeowners need to expand their property or build their own home, they go for contractors who have their own financing to carry on the construction. At the end of the job, the homeowners can opt for a standard home mortgage. But it often happens that these specialty contractors don’t have front end financing of their own. In these cases, going for a construction loan is the only choice available. 

Types of Construction Loans

There are different types and variants of construction loans, but the most popular of these is the construction-to-permanent loan. This loan covers all the building costs and then converts into a normal mortgage loan after the construction is completed.

The main advantage of this kind of loan is that it has one application and one closing, and it acts like a line of credit during the entire construction phase. It provides the borrowers with the cash inflow that they need, and only the interest amount needs to be paid during the construction period. Once that is finished, the borrower can proceed with the interest as well as principal payment.

However, despite all the advantages there are a few setbacks that make these loans a little difficult to handle. Some of these issues include:

Getting an Appraisal

Construction loans are usually approved after an appraisal by the lender. This can prove to be a disadvantage if other homes in the market are of a lower value, because the lender will then approve a lower value loan. To overcome the issues, borrowers have to make larger down payments which can sometimes be unaffordable. 

Higher Interest Rates

Most lenders offer construction loans with adjustable rates only. This means that the payment amount can increase in the future as the Federal Reserve resets the interest values. A lot of lenders also charge a higher interest rate for these kinds of loans, which are around a quarter of a percentage point higher as compared to private mortgage loans. 

Hidden Charges

Aside from the interest rate and down payment, beware of the extra fees and costs that will come with the loan! While origination fee is often charged as 1% of the total loan amount, some lenders may also charge a penalty if you pay off the loan early or go for a refinance.

Broaden Your Options:

Instead of looking at the big banks only, do adequate and consider all the alternate options available. A neighborhood bank, for example, maybe a better choice than a reputed bank if you're looking for more affordable rates. Ask your friends and family etc, for good recommendations and you'll land a decent and affordable loan with much hassle!

Hope this helps 

For help with Construction loans- how to buy and build a home with a single construction loan contact Tony Busanich a loan officer with TD Bank, a lender from Maine to Florida. You can trust TD Bank to deliver a superior mortgage experience. Whether you’re purchasing or refinancing, we provide straightforward, easy-to-understand products and advice, allowing you to make smart borrowing decisions that meet your needs today and tomorrow. My web site at www.tdbank.com/tonybusanich includes mortgage rates updated every morning. You can run different scenario that  include monthly payments, different programs and closing cost. Please contact me at 732-306-2231 or by email at anthony.busanich@td.com and on my web site at www.tdbank.com/tonybusanich  

Comments (12)

Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Tony, great post, and have had a couple of sets of buyers go through a custom builder, and needed a construction loan.

Oct 31, 2021 08:41 AM
Tony Busanich
TD Bank - Freehold, NJ
1-4 FAMILY HOME LOAN SPECIALIST

Thank you Joan for the referrals, please let me know if I can help with any questions your buyers may have. Wish you a great day!

Oct 31, 2021 08:44 AM
Ron and Alexandra Seigel
Napa Consultants - Carpinteria, CA
Luxury Real Estate Branding, Marketing & Strategy

Tony,

This is a very thorough discusssion on construction loans.  I was familiar with them for commercial real estate, and they are an important part of building homes also. A

Oct 31, 2021 08:54 AM
Tony Busanich

Thank Ron & Alexandra, thanks for stopping by and sharing. Both Both commercial and residential construction's are somewhat similar I agree they can be a bit tricky if you don't have your ducks in order.

Oct 31, 2021 02:32 PM
Lawrence "Larry" & Sheila Agranoff. Cell: 631-805-4400
The Top Team @ Charles Rutenberg Realty 255 Executive Dr, Plainview NY 11803 - Plainview, NY
Long Island Condo and Home Specialists

Excellent explanation of a construction loan Tony.  Buyers should know all the options available to them, before signing on the dotted line!

Oct 31, 2021 10:30 AM
Tony Busanich

Thanks Larry & Sheila for sharing, when doing a construction loan you should know and have all the options at your disposal.

Oct 31, 2021 02:34 PM
Roy Kelley
Realty Group Referrals - Gaithersburg, MD

This is excellent advice to share.

I hope you are having a great weekend.

Happy Halloween!

Oct 31, 2021 10:45 AM
Tony Busanich

Thanks Roy for coming by and sharing, wish you all the best.

Oct 31, 2021 02:35 PM
John Pusa
Berkshire Hathaway Home Services Crest - Glendale, CA
Your All Time Realtor With Exceptional Service

Hello Tony Busanich very good helpful report for how to build a dream home with a single construction loan.

Oct 31, 2021 12:14 PM
Tony Busanich
TD Bank - Freehold, NJ
1-4 FAMILY HOME LOAN SPECIALIST

Thanks John for the kind words I'm stopping  by. When it comes to construction loans you should always do your research and homework before hand.

Oct 31, 2021 02:36 PM
Roy Kelley
Realty Group Referrals - Gaithersburg, MD

Good Tuesday morning, Tony.

Have a great day and a productive week.

Nov 02, 2021 04:14 AM
Tony Busanich
TD Bank - Freehold, NJ
1-4 FAMILY HOME LOAN SPECIALIST

Thanks Roy for stopping by and sharing you thoughts.

Nov 02, 2021 05:52 AM
Debe Maxwell, CRS
www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
The right Charlotte REALTOR!

Wonderful advice, Tony! I have done many construction-to-perm loans with custom-build home-buyers. It's a great product, for sure! What percentage is required to be put down on one of your CtP loans if the appraisal comes in within reason?

Nov 06, 2021 09:15 AM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Tony, building your dream home is so much fun, and to have such a small downpayment sure would help!  

Nov 11, 2021 06:37 AM
Tony Busanich
TD Bank - Freehold, NJ
1-4 FAMILY HOME LOAN SPECIALIST

Thank you Joan for stopping by. The best part is when you move it.

Nov 11, 2021 08:58 AM