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(A Builder's Mortgage)
Some people would rather build their dream home to have more freedom and potentially end up with a place customized according to their desires, albeit this can be expensive, time-consuming, and more challenging. Unlike a traditional mortgage that is a “charge” against an existing house to secure a loan, a builder's mortgage isn't secured by a completed home and is therefore riskier for lenders. As the result, construction mortgages often have higher interest rates.
GET FINANCING TO BUY LAND
A first advance is available as equity take-out if builders already own the land they want to build on. But a first advance is available to assist builders with the purchase of a vacant lot if they have not yet purchased the land.
BUILD A HOME ON THE LAND
A builder's mortgage is given in stages – so-called “draws” – as the builder completes various levels of construction. While the home is under construction, lenders often require borrowers to pay off the interest only and would ask for the balance upon completion.
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