Also, low income families or borrowers interested in building in certain target areas can qualify for FHA insured loans, enabling them to receive loans at lower interest rates with lower down payments.
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Borrowers should be careful to ensure that the repayment period does not begin until after construction has finished, and also that the loan agreement covers the entire cost of materials, labor and land.
Home construction loans are usually based on both the potential value of the home and the borrowers income. In order to estimate the value of a home that has yet to be built an appraiser will be called in to evaluate the kind of house that is being built, the materials used to build, the expense of the materials, the expense of labor, the expense of the land, and other miscellaneous costs.
Home construction loans are unique because they are often considered two loans, one for construction and one for permanent financing. However, a Construction-to-Permanent loan or a One-Time-Close loan combines the two, making the loan process simpler and less expensive for the borrower. Combining the construction financing and loan amount reduces the cost to the borrower by eliminating a second set of closing costs, as well as the requalifying process.