Can the interest charged for the entire construction period be paid by the construction loan?
Yes. An “interest reserve” account is permitted but not required. Anticipated interest for the construction period becomes part of the loan amount. In this case, the borrowers does not get a monthly bill for interest (single close construction loans are interest only during the construction period). As with a contingency item, “interest reserves” only make sense if there is “room in the deal”, and the borrowers are not already at the maximum allowable “loan-to-value” ratio, or at the maximum loan amount for which they can qualify. “Interest reserve” accounts are particularly useful when the borrowers are already making a house payment on their current residence.
Related Questions
- What happens if I cannot repay the entire loan balance through teaching service in the seven-year payback period?
- How is the interest calculated and paid on my construction loan during the construction process?
- Can the interest charged for the entire construction period be paid by the construction loan?
