The Pros and Cons of Home Construction Loan

Building one’s own home is one of the biggest joys of life but sometimes, one has to hold back due to poor financial circumstances. In order to eradicate this particular hurdle, you can avail a home construction loan that involves the payment of the construction and mortgage of a property. A construction loan differs from a traditional mortgage. These loans have certain advantages and disadvantages for a borrower; thus, you need to be sure of all the pros and cons associated with a Home Construction Loan.


One of the main advantages of availing this home loan is that you save a lot of time and energy, since you can close it in one instance that leads to less paperwork and stress. Also, you can reduce the closure costs, which are somewhat expensive. Another advantage is the fact that you can avail a good interest rate, and can choose from a fixed or floating interest rate.

Here are some points you might need to consider before selecting a home construction loan.

Build your own house

You can avail independence to building your own house because construction loans increases your chances to borrow a large amount of money, in order to build a house. When you undertake a traditional mortgage, you are supposed to purchase an already existing/constructed property. Thus, this process helps in fulfilling al your construction needs.

Construction to permanent loan

Borrowers are allowed to receive a construction to permanent loan by home loan companies wherein a loan begins as a traditional construction loan and is eventually converted into a permanent mortgage. Also, you will have to only pay for one closing cost, rather than paying for two.

Interest rate

The interest rates vary every year if you avail a floating interest rate policy. It is extremely advantageous for you when the interest rates drop at intervals. This way, you can pay a lesser amount. Bu if the interest rates are higher, say during inflation, then it can create problems for you because you shall have to pay much more than you originally planned.

Short Term

This kind of a loan has a short tenure, therefore, you will be required to take an extension or reapply for finance. When you are in the construction phase, you will have to avail a regular mortgage if you do not have a construction to permanent loan.

Thus, you can avail a home construction loan if you wish to fulfil your dream of a home that you can your own.


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