Call Toll Free 866-211-3344

The Value Of Michigan Construction Loans

The Value Of Michigan Construction Loans

The opportunities made available by Michigan construction loans are impressive. These loans are not underwritten the way traditional ones are, so they are riskier for the lender. However, for lenders that take a chance, these loans can help a family create the home of their dreams. Businesses will have a chance to build a dedicated facility that will improve their business functions. This is an important resource for a community. It gives people a chance to build something all their own instead of buying an existing structure.

There are special features that distinguish a construction loan from other types of borrowing. Since the loan is for construction services and materials, there will be no structure to act as collateral until construction is complete. This means the loan can not be underwritten the same way a traditional loan can.

The money for new home construction loans michigan residents need stays in an account to fund the construction budget. Part of the money goes to the \'interest reserve\' to pay the monthly interest payments during construction. The funds are made available to the contractor using a process called a \'draw.\' The draw can be made on a regular schedule or by making a special request.

To make sure the new construction loans michigan banks offer to contractors stay on schedule and on budget, they often check on progress as part of the draw process. This is a way the try to protect themselves from a loan failure. They also will try to limit the amount of the loan to what the borrower can afford to pay. This brings up a few options for the lenders and borrowers for when the loan is due. One attractive option is the construction to permanent financing that converts construction loans to mortgages after construction is complete.

There may be a higher interest rate on a loan during construction that might help get better terms on the mortgage. This is an appealing option, especially for those who prefer going through the application process one time. Another benefit of this type of program is that there is only one loan closing. This can be a risky type of lending for banks, but the potential rewards for the community make them worth it.