Construction Loans: What Are The Different Types?
Building a house or remodeling a commercial building – in either case, you’re going to need financing. Construction loans come in many shapes and sizes, but the friendly team at Sentry Bank can help you sort through and find the perfect one for you!
Get in touch with our team when you’re ready to talk construction loans.
COMMERCIAL CONSTRUCTION LOANS
Land Development Loan
A land development loan is used to make your parcel construction-ready. This includes money spent to divide and parcel out the land, or installation of sewer, water, power and other necessities.
Acquisition & Development Loan
An acquisition and development loan is used to improve land after it’s been developed. This loan can cover the cost of purchasing land, and any improvements which need to be made to existing infrastructure or buildings.
Interim Construction Loan
An interim construction loan pays for the labor and materials used. It’s usually valid for 18-36 months, and then settled into a long-term mortgage afterwards.
RESIDENTIAL CONSTRUCTION LOANS
Stand-Alone Construction Loan
In a stand-alone construction loan scenario, you are issued two separate loans. The first covers payment for construction. The second is a mortgage, which can also be used to pay off the construction loan. These loans sometimes have a lower down payment which can be beneficial is you have plenty of assets but aren’t cash heavy.
With a construction-to-permanent loan, you will initially borrow the money for construction. This is a short-term line of credit that typically comes out in periodic withdrawals throughout the building process.
Once construction is complete, the construction loan then gets refinanced into a home mortgage. The lender transitions the construction loan into a permanent mortgage only after the contractor has completed building the home, and the home will need to be appraised to determine if the home value will hold the value of the mortgage. In this scenario, two loans get rolled into one final loan. This means there are fewer closing fees.