Architectural Fees
A second mortgage, a home equity loan, or a cash-out refinance are all ways you can borrow money against the equity in your residence to make home improvements, which can include architectural fees. The amount of money you borrow should be plenty to cover the architect’s fees and other costs, including design, building materials, labor, construction and required permits. If you own land and hire an architect to design a home to build on it, the architect’s fees factor into the cost of the home from the outset, which is unlike a primary mortgage you take out on an existing home. This is an important distinction. Architectural fees and other costs form the basis for the loan amount on construction loans.
Construction Loans
A construction loan includes soft and hard costs. Architectural fees, engineering fees and permit fees fall in the category of soft costs, while hard costs relate to the actual construction and building materials. A construction lender considers all costs related to building the home, including the value of the land, to determine a loan amount. A construction loan is different than a standard mortgage in that a financial institution lends money for either the rehabilitation of an existing property or for the construction of a new home on a piece of land.
How It Works
Construction loans are interest-only loans over a short term, such as six months. You must also provide the lender with final plans and specifications for your home, such as architectural drawings and building materials you plan to use. You need a valid construction contract, which details the agreed-upon cost and estimated completion time for the project. The lender disburses funds into an account based on a draw schedule. You have the option of converting a construction loan into a standard mortgage after the work is completed. The interest rates on construction-to-permanent financing are higher than on a stand-alone construction loan.