In the world of home loan financing, there are enormous numbers of options and varieties. From home mortgages to equity loans to home equity lines of credit, the list of potential homeowner loan products is extensive. For borrowers in atypical homeowner situations, the list becomes short quickly. If you have a home that is under construction, or you wish to purchase a home that is not yet finished, your options are fewer, but it is still possible to find the financing you need.
The most common type of loan for unfinished homes is a construction loan. The purpose of this mortgage is to use the resources on the mortgage to completely construct the home into a livable dwelling. Many construction loans start as lines of credit that can be drawn against -- to purchase supplies or pay contractors -- and then are either automatically refinanced or potentially can be refinanced into conventional, fixed mortgages.
The Department of Housing and Urban Development also offers a mortgage program for people with partially completed homes or homes that are in need of rehabilitation. The 203(k) plan allows homeowners the funds to purchase the property, and additional funds to completely rehabilitate the home so that it ultimately becomes a livable, insurable dwelling. Most 203(k) mortgages are insured by the Federal Housing Authority and come with competitive interest rates.
Home Equity Line of Credit
If you are currently living in a home that is unfinished, you may be able to obtain a small home equity line of credit to help you finish the construction on the home. These products often come with higher fees and interest rates than traditional mortgages, but they are also often easier to acquire than a large mortgage. The best available rates for home equity lines of credit will likely be at banks and credit unions, but finance companies and mortgage brokers offer these products as well.
Hard Money Loans
If you cannot get approved for a home equity line of credit, a construction loan, or a HUD 203(k) loan, you still do have one last option: a hard money loan. These loans, deemed "loans of last resort" by Bankrate, are generally financed privately by investors and individuals, and come with dramatically steep interest rates and fees. These are the option of last resort simply because the cost of obtaining them may outweigh the benefit of the funds.
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