If You Can Dream It, You Can Achieve It
A construction loan is any loan where the proceeds are used to finance construction of any kind.
What is a construction mortgage?
A construction mortgage is a type of loan that specializes in building a home. Loans are often phased in during the construction phase as construction progresses. Interest is usually paid on the mortgage only during the construction period. Loan amounts are paid once the construction phase is complete, but some construction mortgages can be converted to standard mortgages.
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How do Construction Mortgages Work?
A traditional mortgage can help you buy an existing home, but starting with land and building a building from scratch requires a construction mortgage, also called a mortgage. Unexpected expenses often arise during construction, increasing overall costs. Construction mortgages can be sought to avoid delays in completing the home and to better ensure that most, if not all, construction costs are covered in a timely manner.
Because new housing projects are riskier than buying existing properties, construction mortgages can be difficult to obtain and have higher interest rates than regular mortgages. Still, there are many lenders, both mortgage professionals and traditional banks.
Construction Loans Experts | Key Takeaways
- A construction mortgage is a loan you pay to build a new home.
- During the construction phase, most loans of this type are interest bearing and will be repaid to the borrower in stages as construction progresses.
- The two most popular types of construction mortgages are stand-alone construction mortgages and construction mortgages.
- The former are often offered for a one-year term only, while the latter are converted into standard mortgages when the house is built.
- Because new housing projects are riskier than buying existing properties, construction mortgages can be difficult to obtain and have higher interest rates than regular mortgages.