Construction loans can be great means of paying the costs associated with additions to existing homes. Here are a few things to consider about using a construction loan for that purpose.
Using a construction loan for an existing home addition can provide you with a lot of flexibility when compared to other types of loans. With a traditional mortgage, the lender would have to see a property completed in order to determine the value that they will lend against. However, when you use a construction loan, you are actually going to be able to get a loan based on the projected value of the property.
One of the most popular construction loans for existing home additions is the FHA 203(k) Rehab loan. This is offered by the FHA (Federal Housing Administration), which means that it is backed by the federal government. When you get this type of loan, you are going to be able to get a very reasonable interest rate, and you can get approved even if you have a questionable credit history to work with. These loans typically have low down payment requirements.