Construction
Building Loan
What is a Construction Loan?
A construction loan is: A short-term loan used to finance the building or renovation of a home or other real estate project. The funds are typically disbursed in stages as the construction progresses.
Common types include: Construction-to-permanent loans, which convert to a standard mortgage after construction, and stand-alone construction loans, which require a separate mortgage to refinance upon completion.
Disbursement Schedule: Funds are released in intervals, called "draws," based on the project's progress and pre-agreed milestones.
What are the benefits of a
Construction Loan?
Custom Home Building: Enables homeowners to finance the building of a custom home tailored to their specific needs and preferences.
Controlled Disbursement: Funds are disbursed in stages, ensuring that money is only spent on completed work, reducing the risk of overspending.
Interest-Only Payments: During the construction phase, borrowers often make interest-only payments on the disbursed amounts, which can be more manageable than full payments.
Flexibility in Use: Can be used for a variety of projects, including new home construction, major renovations, or additions to existing structures.
What to expect with a
Construction Loan?
Lender Experience: Choose a lender with experience in construction loans who understands the complexities and can guide you through the process.
Detailed Plan and Budget: Have a comprehensive construction plan and budget. Lenders will require detailed information about the project, including costs, timelines, and construction milestones.
Loan Terms: Carefully review the terms of the loan, including the interest rate, repayment schedule, and any fees. Understand the terms for converting the loan to a permanent mortgage if applicable.
Draw Schedule: Ensure the draw schedule aligns with your construction timeline and provides sufficient funds at each stage to avoid cash flow issues.
Builder Credentials: Work with a reputable builder with a solid track record. Lenders may require builder approval to ensure they are reliable and capable of completing the project.
