Get a Construction Loan Today!
Construction loans Oregon are created for people who are planning to build their own home as opposed to just buying a pre-existing property. With traditional loans, the lender receives the actual home as collateral in the event that you default on your loan. Since a construction loan does not have an existing home on the property, it makes the loan much riskier for the lender.
In order to counteract the heightened risk, your lender will offer you a loan with a higher interest rate. The qualification criteria are also very strict. A builder who secures a construction loan must have 25 percent to put down. Later, when construction of the property is completed, the borrower can then take the construction loan and convert it back into a traditional home loan using the same lender.
During the construction process, your lender has the ability to come and see the building’s progress and inspect the building to make sure everything is going as intended. If they discover some sort of flaw or things are not going as scheduled, they also have the right to adjust the terms of your loan in their favor, usually with an increase in your interest rate.
Types of Construction Loans
There are two different types of construction loans available.
How to Qualify
Since construction loans Oregon are considered short-term, you will have to fall within stricter qualifications. The lender will look to ensure you have significant financial reserves in the event there are unexpected added expenses. You must carry an excellent credit score with an unmarred credit history. A construction company looking to get a construction loan also must provide the lender with detailed plans and schedules on the property build with calculations for each step. Typically, the loan limit will be capped at what the property’s estimated value will be once complete.
How it Works
Usually, with a construction to permanent loan, a borrower will not take the full loan amount upfront. Instead, they will borrow enough to begin the project and gradually increase what is borrowed at each interval of the build. This way you will only be responsible for the interest on whatever is outstanding in the balance. Using this method, you will be required to use up all portions of previously loaned money before any more will be dispersed.
After completion, your construction loan is converted into a traditional mortgage loan by your lender. It then follows all the typical rules of a traditional mortgage. The best mortgage lenders in Oregon will let you lock in a maximum mortgage rate when you first begin construction.
A stand-alone loan can sometimes allow for a lower down payment. For borrowers who plan to continue to live in their existing home while the new one is being built, this can be an advantage. The borrower will have more money once the sale of their old home goes through but until then they may not have a substantial amount for a down payment.
The downside to a stand-alone loan is that since it is two separate loans, there will be two separate sets of fees to pay. You also are not able to lock into a max mortgage rate and end up with a rate much higher than you planned on. Also, if your financial situation takes a nosedive during the building process, you may find you cannot secure the mortgage loan needed after construction is completed to pay off the construction debt and move into your new home.