Institutional lenders can provide great rates on home builder construction loans. Just remember that there are some nuances to these programs that you are going to need to be aware of and manage to get the full value out of them.
First, the only reason the institutional lender is providing the construction loan to you in the first place is to be able to also issue a long term take out mortgage once the project is completed. This is a more profitable, long term asset to the lender.
In order to tie the two separate mortgages together to make sure they get all your business, the institutional lenders tend to use some of the following practices.
There is absolutely nothing wrong with this approach, but it does place restrictions on you that you should be aware of from the outset. Taking a bank construction loan and not paying it out with their take out mortgage is likely going to be expensive, even if you’re able to find a cheaper long term mortgage rate prior to the completion of construction.
There are other things to consider for properly managing an institutionally issued construction mortgage in order to get the most benefit out of the lower rates they provide. If you’d like to understand more about this form of construction financing and how to best use it to meet your need, please give me a call and we’ll go through everything together.