Commonly Asked Questions About Construction Loans

Commonly Asked Questions About Construction Loans

What is a construction loan?

Construction loans enable a new home to be built through the duration of construction. They are reflective of the time needed to build your home and typically range from six months to a year. Once you have secured a construction loan, your lender will pay your builder after each interval of work is completed. Once construction ends, your loan repayment begins.
Many homebuyers choose the convenience of having their construction loan combined with their standard mortgage plan, in something called a construction-to-permanent loan. This eliminates the need to refinance after construction and undergo two separate closings.

How do construction loans work?

Your builder will outline how much money is required to build your home, segmenting expected costs into intervals of work. Your lender will compensate your builder after each interval, usually per month, once they have independently verified that the designated work has been completed.

When do you pay?

With most construction loans, you only pay interest on the amount of money that is drawn out each month. You will begin to repay your lender for the bulk costs after your home is completed. If the project is builder-financed, the construction loan is the builder’s responsibility and the buyer will not need to pay anything at all until the end of construction.