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Construction Loans

construction loans

You’ve decided to build a new home. But rather than buying from a new home developer you want it to be custom built. That means you’re going to have to finance the actual building process. And most likely you’re going to need to apply for a construction loan.

Construction loans differ slightly from regular mortgages. To help you understand those differences, we’ve listed the answers to your most common questions:

What’s the difference between a construction loan and a mortgage?
A mortgage is a lien against a real property given by a buyer to a lender as security for money borrowed. A  construction loan is a short-term loan used to finance the cost of construction.

Do construction loans carry the same interest rates as mortgages?
Unlike mortgages, construction loans aren’t meant to be long term. They are usually set up as variable-rate loans priced at short-term interest rates. Typically, a schedule is set up to enable funds to be drawn as needed to finance the various stages of construction. Interest is charged on the money that is disbursed. And during the time your home is being built, you usually make interest-only payments on the loan.

What is construction-to-permanent financing?
By applying for construction-to-permanent financing, you can get a short-term construction loan that automatically converts into a permanent mortgage loan when your home is built.

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