Construction Loans for New Homes

Construction Loans are a bit more in-depth compared to normal home loans and mortgages. Since the home or building doesn't exist yet, the bank will want to know a lot of information about the project before they lend you the money.

Although they are not drawn up and underwritten in the same fashion as standard mortgages, there are some typical features often found with a construction loan. They generally require interest-only payments during the actual construction and become due on project completion or when the home can be occupied.
Construction loans are typically variable rate. Between the lender, the contractor, and you, a schedule of progress is drawn up based on the stages of construction. This schedule is used to determine dates on which interest is charged based on how much money has been disbursed.

Another thing to consider with construction financing is current equity. For example, if you own the land where the construction is to take place, that can be considered equity and be highly beneficial when getting financed. If the lender would otherwise not want to finance as much of your project as you'd like, that equity may be used as leverage.

Some people who are financing new construction get construction-to-permanent loan programs. With this type of loan, the construction loan becomes a regular mortgage after the construction is complete. Although this type of program can carry slightly higher interest rates, you only need to deal with one loan application and one closing.