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Did you know that only 7 million new homes were built in the United States of America between 2012 and 2021? Many people prefer to buy a house rather than build a house when looking to settle down and start a family. Buying a home is a big investment, so it makes sense to consider using a home loan to get your dream home.
However, there is always the possibility of building, and in this case, you must know the difference between a mortgage and a construction loan. Both are effective financing options to help you move into the home you’ve always envisioned for you and your family.
The good news is that you’ve come to the right place to learn more about a home loan and a construction loan, and what’s right for you. Keep reading this home loan guide for more information today!
Types of home loans
There are two main options if you are looking to buy your first home. The less risky option is a fixed rate mortgage, which allows you to make fixed payments over the life of the loan.
Your other option is the adjusted rate mortgage. This option allows the interest rate to fluctuate based on other economic factors. Here is an overview of both.
Fixed rate mortgage
The fixed rate mortgage is the most popular option for people looking to buy a home. You will have to repay what you borrow from the lender plus interest over a fixed period of time and with a fixed interest rate. Interest will not fluctuate or change over the 15 or 30 year period that you pay back what you owe.
Many people prefer a fixed rate mortgage because they can budget for it. They know how much they will owe each month to pay the lender. If you are planning on owning for the long term, you better get a fixed rate home loan.
Variable Rate Mortgage
A variable rate mortgage is your other option, and it’s different because the interest rate will fluctuate over the course of the loan. There are many more risks associated with a variable rate mortgage.
If you don’t plan to stay home long term, you should consider getting an ARM. Lenders often offer much lower interest rates in the first year with this type of home loan. Obtain a connective real estate loan is a great idea if you are in the market to buy a new home.
Types of construction loans
You have several options to choose from when deciding to build a new home to live in. Each brings its own advantages and disadvantages, but there is a perfect option for everyone who wants to build a house. .
Single closure
The first option is called a one-time closing construction loan. This type of construction loan is often referred to as an open-ended construction loan. Once the house is built, the loan converts from a construction loan to a conventional home loan.
There is only one application with this type of home loan, which means you only have to pay closing costs once during the process of financing your new home. You will also make interest-only payments while the house is being built.
Two-step closing
Two-stroke construction loans are another option you should consider when making the decision to build a new home. You will need to take out one loan to handle the construction part of the process, then a second loan for the mortgage phase of your home.
If you’re worried about getting the best interest rates on your mortgage, this is a great option. It gives you the opportunity to search for the best interest rates after the construction of the house.
Proprietary builder
The last option you can choose if you want to opt for a construction