Construction loans versus refinancing

A lot of people are intimidated by the building process and what they think a construction loan might be like. It is true that when you build, you would typically get a line of credit to cover the construction then convert the loan to a permanent mortgage once construction was complete. For some, that fact coupled with managing builders sounds daunting. So, many buyers consider refinancing their existing home to cover the cost of construction for the new home.

While that may first sound easier, there are some really good reasons why you should get a construction loan.

First and foremost, with a construction loan, you’re not paying for something that you’re not using! Typically, construction periods are a minimum of twelve months. When you refinance, you’re paying interest on the full amount that you borrow from day one, including the period that you’re not living in the home. With a construction loan, you’re only paying interest on the cost of the build out. Payments are made in increments to the builder as steps have been completed throughout the construction period.

Second, if you choose Chesapeake to fund your construction loan, we’ll work with your builder to try and avoid any delays. With your approval and because we’re already involved, we could handle all transactions directly with the builder. This means that you would have more time to pick out the details that will make the house, your home. In contrast, by refinancing, you would be left with handling most of those interactions directly.

Third, while this point may be last, it could be the most important. When you choose a construction loan, a title company will provide protection to you in case there is an issue with the builder. The fact of the matter is that things happen. — Even when you’ve done your due diligence and know the builder really well. Mechanics liens can be issued. The contractor can fold. Other problems could arise. If you choose to cover construction through a refinance and something happens. Then you could potentially pay ALL of those costs again and be out the money that you’ve already paid.

As you can see, there are some legitimate reasons but also benefits from this type of lending. We’re also happy to report that most customers are even surprised to discover that the construction process isn’t as scary as they originally thought.

And while we have your attention

We know that it can be overwhelming to choose your lender. So, we hope you don’t mind this plug about why we’re different.

We don’t have a laundry list of fees like other companies. We’re not even paying an outside party for your inspections. We can do those in house. Mortgage brokers aren’t usually set up to handle construction loans, so a refinance may be your only option through one of them. Since we’re in the community that you live in, no lender will care about you or your home, as we will.


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