Home Construction Loans

Written by Ingrid Chen
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Home construction loans differ from regular loans. A construction loan is a loan that you would get while you are waiting for your house to be built. It's considered a "story" loan because you have to tell the lender the story of your home. You have to make him or her familiar with your building plans and how long you expect construction to take. These loans are generally not standardized or underwritten.

One of the great things about a construction loan is that you usually only have to make payments on the interest while the home is going up. However, this loan isn't like a mortgage. It isn't meant to be spread out over a long period of time. Most require full or almost-full payment once the house is done. A house is officially done when it receives a certificate of occupancy.

The interest rates on such loans are considered short-term. They are variable and often spread to prime. If you can't quite get all the money that you need for this loan, you might want to use equity. If you already own the land that the house is being built on, for instance, you can use that against your loan.

Making it Easy

Many people like to do things as easily as possible. For this reason, the option to do a construction-to-permanent loan is quite popular. With this, your construction loan automatically transfers over to being your mortgage. You only have one application and one closing. It's a good idea to buy a rate-lock agreement with your construction loan that lasts until the estimated end of construction.


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