Construction loan basics

Aug 10, 2023A construction-only loan provides the funds necessary to build the home, but the borrower is responsible for either paying the loan in full at What Is A VA Construction Loan?Best construction loan lenders

A construction loan (also known as a “self-build loan") is a short-term loan used to finance the building of a home or another real estate project. The builder or home buyer takes out a construction loan to cover the costs of the project before obtaining long-term funding.

A construction loan is a short-term loan that covers only the costs of custom home building. This is different from a mortgage, and it's considered specialty financing. Once the home is built, the prospective occupant must apply for a mortgage to pay for the completed home.

Do you need a construction loan to build a house?

Building a house from scratch can be a great opportunity to get the home you’ve always wanted

But construction costs can add up quickly and timelines can be unpredictable

Luckily, a variety of construction loans provide the upfront cash needed to pay for the land, materials and labor to build a new house

What Is a Construction Loan?

How do I apply for a construction loan?

Thorough application process: When you apply for a construction loan, you’ll be asked to provide the details of your construction project, including like the total amount of funding required, details about the builder, a detailed project timeline, the floor plans or construction drawings, the cost of materials, and the cost of labor

What is a construction loan?

They are short-term loans, usually for a period of only one year

After construction of the house is complete, the borrower can either refinance the construction loan into a permanent mortgage or obtain a new loan to pay off the construction loan (sometimes called the “end loan”)

×A home construction loan is a short-term loan used to finance the building of a residential property. The loan can cover the cost of the land, contractor labor, building materials, permits, and more. The loan is usually one year in duration, during which time the property must be built and a certificate of occupancy issued. Construction loans have higher interest rates than traditional mortgage loans because they are considered relatively risky. The loan can also be used to purchase the lot on which the home will be built.