Construction Loans
What is a Construction Loan?
A construction loan is a more specific type of loan, designed for construction and containing features such as interest reserves, where repayment ability may be based on something that can only occur when the project is built. Thus, the defining features of these loans are special monitoring and guidelines above normal loan guidelines to ensure that the project is completed so that repayment can begin to take place. Our loans cover everything from single investment property to multi-family dwelling with hundreds of units.
Key Features of Construction Loans
- Funds are released in stages as the construction moves forward, rather than all at once.
- Payments are typically interest-only during the building phase, and only on the amount that’s been drawn.
- Because the property isn’t complete yet, lenders view these loans as higher risk, which usually means higher interest rates and larger down payments (often 20–25%).
Types of Construction Loans
- Construction-to-Permanent Loan: Starts as a construction loan and then converts into a mortgage once the home is complete.
- Construction-Only Loan: Covers just the building phase, and requires refinancing into a mortgage later.
- Renovation Loan: Designed for major upgrades to an existing property.
- Owner-Builder Loan: Available if you plan to act as your own contractor, though you’ll need to show proof of qualifications or experience.
Requirements
- A strong credit profile, usually 680 or higher.
- A clear and detailed construction plan with a full budget.
- A licensed contractor to oversee the work.
- A down payment, typically 20% or more.
- An appraisal based on the lot value and building plans.