Construction loans versus refinancing

Don’t be intimidated by the process of obtaining a construction loan. It’s easier than you think!

With a construction loan, you obtain a line of credit then and convert the loan to a permanent mortgage once building is complete. That process -- coupled with managing builders -- sounds daunting to some, so they opt for refinancing their existing home to cover construction costs.

When you refinance, you are taking the equity out of your existing mortgage to cover the cost of construction. Then changing the terms (interest rate and duration) of your mortgage to include that cost. At first it may sound like an easier option but there are good reasons why you should consider a construction loan.

ADVANTAGES OF CONSTRUCTION LOANS

First, with a construction loan, you don’t pay for something you’re not using! Typically, construction periods are a minimum of twelve months. When you refinance, you’re paying interest on the full amount from day one, including the period when you’re not living in the home. With a construction loan, you only pay interest on the cost of the build-out as you make incremental payments to the builder.

Second, if you choose Chesapeake to fund your construction loan, we’ll work with your builder to avoid delays. With your approval, we can handle all transactions directly with the builder. This means you have more time to pick out the details to make the house your home. In contrast, by refinancing, you handle most interactions directly.

Third and most important, when you choose a construction loan, a title company provides protection in case there is an issue with the builder. Unforeseen things can happen — even when you’ve done due diligence and know the builder. Mechanics liens can be issued if the builder files a claim for non-payment. The contractor can fold. Other problems may arise. If you cover construction through a refinance, you could potentially pay ALL of these costs and lose the money you’ve already paid.

There are legitimate benefits of choosing a construction loan. And most customers are surprised to discover that the construction process isn’t as scary as they originally thought.

WHY YOU SHOULD CHOOSE CHESAPEAKE BANK FOR YOUR LENDER

We know that it can be overwhelming to choose your lender. Here’s how Chesapeake is different than other lenders:

• Typically, we don’t need to pay an outside party for your inspections. We try to handle them in house whereever possible. 
• Mortgage brokers aren’t usually equipped to handle construction loans, so a refinance may be your only option through them.
• You will always get a live person when you call us. And it’s usually, someone you already know.
• Since we’re in the community where you live, we'll know the area better than an outsider too. This can help when you need a contractor, a recommendation, or need someone onsite. 

Buying a home is an exciting event and choosing a home loan can be a big decision. We want to help you make the right decisions for your family and your finances. We also want you to love your relationship with your personal bankers. We’re here to help.