If you are planning a major home remodel, there are several things you need to consider before starting the project. You need to ask yourself if the money you spend is a wise investment. Should you ever want to sell your house; will the neighborhood support the price you would need after the remodel? In many cases it might be better to find a bigger house that better suits your needs instead of spending a lot of money on the one you currently own.



When you are building a home to your specifications you need to get a construction loan. A construction loan is not a mortgage. A construction loan can become a mortgage eventually, but when it starts out a construction loan is not a mortgage. A construction loan is financing set up with the bank of your choice that allows you to pay contractors as they build your home. If you already own the land you want to build on then you sometimes do not need a down payment on your construction loan. That depends on the bank. But a construction loan has closing costs just like a mortgage and differing interest rate scenarios just like a mortgage, but a construction loan is an ongoing relationship with your bank that can make or break your dream home.

You, Your Bank, and Your Construction Loan When choosing a bank to do business with it is always best to choose one that has experience in new home building and also can offer you a loan officer that has experience in administering construction loans. Without a good relationship with your loan officer your experience in building your dream home could go horribly wrong. So how does a construction loan work and what is the dynamic between you and your bank?

Getting The Most For Your Money It is fairly common knowledge that a major home remodel that includes the kitchen and bathrooms will be what adds the most value to the home. These two areas are also the most expensive areas to renovate. Upgrading your kitchen could easily cost you up to $75,000 if you go first class all the way. Kitchen cabinets are a very expensive item but will usually give you a good return on your investment. Built in stoves and ovens are also very popular but cost more than the standard stand-alone stove. Counter tops come in all kinds of different materials and colors. Marble and stone are the most durable but also the most expensive

Another important part in a construction loan is how much of the project cost the lender will be willing to lend. If the land is already owned by the loan-taker, then that can be considered equity on the loan.

When your home is finished, and the county you live in has granted you an occupancy permit, then it is time to convert your construction loan into a mortgage. A construction loan is meant to be short term financing and you need to have a plan in mind when it comes to converting to a permanent mortgage. Probably the easiest way to convert to a permanent mortgage is to make sure you get a construction-to-perm loan from the very beginning. This kind of loan allows you to buy the land, finance the construction, and convert to a permanent mortgage all for one closing cost. It is the easy way to reduce the stress on a complicated financial transaction.

Financing The first component of a construction loan is the soft costs. They consist of architectural plans, engineering, and permit fees. They should be taken care of before all else. Second are hard costs. They are all the actual physical costs of construction. Third are closing costs; consisting of lender and origination fees. These also include the title and closing fees. Fourth are inspection fees. These can become very costly, even in simple circumstances. Fifth are reserves; consisting of interest reserve and contingency reserve. Last is the existing lot pay off.