Closeup a newly framed home.

What is a Construction Loan?

Intended to cover the cost of constructing or rehabbing a house, Construction Loans are higher interest rate, shorter term (usually for a period of one year) loans paid to a contractor, rather than the borrower, and as construction targets are completed. Upon completion of construction, the borrower has the option to 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”).

Who is eligible?

Unlike a traditional mortgage, when you borrow money for a Construction Loan, there may not be collateral available – after all, the house may not be built yet. So, there are a few extra considerations. First, a 20% to 30% down payment is traditionally required for new construction. Also, your debt-to-income ratio (DTI) should be no more than 45% of your income and you should have a credit score of 680 or higher. Additionally, the lender may want to know if you’ll pay the balance in cash or refinance upon completion.

Features

Who is eligible?

Unlike a traditional mortgage, when you borrow money for a Construction Loan, there may not be collateral available – after all, the house may not be built yet. So, there are a few extra considerations. First, a 20% to 30% down payment is traditionally required for new construction. Also, your debt-to-income ratio (DTI) should be no more than 45% of your income and you should have a credit score of 680 or higher. Additionally, the lender may want to know if you’ll pay the balance in cash or refinance upon completion.

What other loan types are available?

When it comes to loans, you have many more options than you think. Find out about some here:

Possibility starts here.
Find a loan officer near you to get started.

Stay informed in
our Learning Center