| Finding the right loan or loans for your building project | | | | Construction Loans provide the financing for the |
| could feel like a balancing act. Here are the basic | | | | construction of your new home. When you're building |
| types of loans that you will be dealing with: | | | | a new home, most financial institutions require you to |
| Bridge Loans are short-term loans designed to span | | | | take out a construction loan rather than a |
| the monetary gap between the closing of your new | | | | conventional mortgage. The construction loan is often |
| home and the closing of your current home. As the | | | | blended into a conventional mortgage once the house |
| name implies, this type of loan provides a financing | | | | is finished, in many cases without any additional fees. |
| "bridge" for beginning construction of your new home | | | | Under a construction loan, a builder receives "draws" |
| while you sell your current home. Your current home | | | | from the bank as various phases of the construction |
| serves as collateral for the bridge loan. Typically, | | | | is completed. The final draw comes when the house |
| financial institutions charge a slightly higher interest | | | | is completed. The number of draws depends on the |
| rate for this type of loan, along with processing and | | | | bank and how much up front money you put toward |
| administrative fees. Most residential bridge loans are | | | | the construction of your new home. Most banks |
| written to last for six months or less. You have to | | | | charge a set fee for each draw. In addition, some |
| be able to afford to carry the three loan payments: | | | | financial institutions charge administration fees and a |
| the old mortgage, the new mortgage, and the bridge | | | | higher interest rate for constructions loans. |
| loan, until the closing on your old home. | | | | |