Construction loans are generally known as story loans. This is because the lender will wish to know the story behind the whole planning process before the loan is granted. Although these loans are not standardized in the manner of mortgage loans they will require interest-only payments while the construction is going on and can be turned into a mortgage loan upon the completion of the building and the issuing of the certificate of occupancy. This is convenient to the borrower as it can be done with the same application and closing.
Typically, construction loans have variable rates combined with some form of short term interest rate. The loan can be divided into stages in keeping with the different phases of construction according to which the funds will be disbursed. If the borrower is the owner of the land, it will be ideal as it can be offered as equity on the loan taken for construction purposes. This can easily change the amount that the lender is willing to risk.
Once you are able to estimate the date if completion of the construction then it will be a good idea to apply for a rate lock agreement with due thought given to construction delays.
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