Construction Loan Guide: What Are the Requirements for a Construction Loan? - Total Mortgage Blog

Abstract

How Does a Construction Loan Work? In contrast to a 30-year mortgage, a construction loan is usually just for 12 to 18 months, covering the construction period or the land itself, and is based on the project's completion. While mortgage loans have varying criteria based on the lender, a construction loan is regarded as more difficult to qualify for and has a higher interest rate than a standard loan. Lenders see construction loans as high-risk because, unlike regular mortgages, which have a home as collateral if you default on your payments, construction loans have none. Types of Construction Loans Like all loans, construction loans come in a variety of shapes and sizes, but they typically cover the following: Contractors Cost of the landAny building materials Permits needed by local communities You may be wondering what kind of construction loan is best for you, depending on your plans for a property. Construction-only loans only cover the basic costs of building and you'd need to take out either an additional loan to finish it or convert it into a permanent loan as well. Lastly, while a construction loan is used to build the house, end loans are simply the homeowner's mortgage once construction is completed. What Are the Requirements for a Construction Loan? So what are the requirements for a construction loan? There are a lot more things to consider when applying for construction loans, such as a builder's cooperation and securing permissions from local communities, as well as the building timeframe with comprehensive blueprints and an accurate budget.