Stand-alone construction loans: the name of this loan is a little confusing, as it WILL include a longer-term mortgage as well.Though sharing the commonalities already mentioned, they differ in the benefits they could present to you, as a borrower.

There are two types of real estate construction loan: a stand-alone construction loan, and a construction-to-permanent loan. How the loan works more specifically depends on the type on loan you secure, and who you secure it with. Everything works off schedules and milestones that you had clearly set out to the lender to secure financing. You will make interest-only payments during the building period, typically based on a variable rate.Įxpect your lender to check-in every time before disbursing draw-period funds, to make sure the project is adhering to the schedule pre-approved by you, the builder and the lender.

They are on a predetermined draw schedule to cover the costs of building. With a construction loan secured, you will receive installment payments for that first year of building. The larger part is usually 15 or 30 years. Most often, construction loans are short-term loans (one year or less) that turn into a longer, more conventional mortgage when building is complete. FICO – as a real estate construction loan is often lacking a home as collateral, the borrower’s FICO score is much more important than it might be in other financing.Expect much more scrutiny, supervision and direct activity with your lender plans – you will need to provide detailed plans and timetables to qualify for this type of financing.If you own property already, you actually may be able to leverage it as collateral, and get better terms for your construction loan land – usually, the property on which you will be building is included in the real estate construction loan.Banks are where you need to concentrate your efforts seeking this kind of financing, most often, as well as some government programs banks – while mortgage companies might be most common with securing a conventional mortgage, they tend to shy away from the complexity and risk of real estate construction loans.This article will help you to understand some of the basics about new construction real estate loans so that you can one day also claim your own part of the American dream.īefore delving into the specifics of loan types and how they might work for you, there are some commonalities shared by all real estate construction loans, including: The complication is that real estate construction loans are more complicated than a normal loan, so you have to do a little more legwork. The good news is that if you are looking for help in achieving a similar dream, there are programs and loans that are ready to help you. Many people might never act on it, while many others certainly will: finding ways to save and plan, and one day build the home they always wanted. To build a new house is a dream shared by many Americans. Understanding Real Estate Construction Loans

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