What Is a Construction Loan?
A construction loan is designed to help finance the construction of a new home rather than the purchase of an existing one. Instead of receiving all of the funds at closing, money is typically distributed in stages as construction progresses.
How Does a Construction Loan Work?
Unlike a traditional mortgage, a construction loan provides funds through scheduled draws to pay for labor and materials as your home is built. Once construction is complete, the loan is either paid off or converted into a permanent mortgage, depending on the loan program.
What Is a One-Time Close Construction Loan?
A one-time close construction loan combines the construction financing and permanent mortgage into a single loan.
This means you typically:
- Close only once.
- Lock in your financing upfront.
- Avoid a second closing after construction is complete.
- Simplify the financing process.
A one-time close loan can save both time and money by eliminating the need to qualify for a second mortgage after your home is built.
What Can a Construction Loan Be Used For?
Construction loans may be used for:
- Building a new primary residence.
- Purchasing the lot (if eligible).
- Construction costs.
- Labor and materials.
- Certain contingency reserves, depending on the loan program.
Eligible costs vary by loan program, so it’s important to review your construction plans before getting started.
What Will the Lender Review?
When applying for a construction loan, lenders typically review:
- Your income and employment.
- Your credit history.
- Your available assets.
- Construction plans and specifications.
- The builder’s qualifications.
- The estimated construction costs.
Construction loans involve additional documentation compared to a traditional purchase because the lender is financing a home that has not yet been completed.
Is a Construction Loan Right for You?
If you’ve found the perfect piece of land or have always dreamed of building a custom home, a construction loan may be the financing solution you’re looking for.
I’ll help you understand the process, review your options, and guide you through each step from planning to completion.
Ready to Apply?
If you’re planning to build a new home, I’d be happy to discuss your construction plans and explain the financing options available to you, including one-time close construction loans.
When you’re ready, you can complete a secure online application by clicking the button below. I’ll review your information and help you determine which construction loan best fits your goals.
Note:
Construction loan guidelines, builder requirements, draw schedules, and eligible project costs vary by loan program and lender. Every construction project is unique, so it’s important to review your plans before construction begins.