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Construction Loans | How Do Construction Loans Work?

Posted by Penn Hull on Wed, Oct 20, 2010 @ 10:10 AM

How Do Construction Loans work?

Ask the Financing Expert Series

Comparing Construction Loans with Permanent FinancingConstruction Home Loans | Custom Home Builders | How Construction Home Loans Work


Brian Liable, Sr Loan Officer, and Primary Residential Mortgage, answers your home financing questions.

Today's question:

"How do Construction Loans Work?"



Construction loans are short term loans with interest-only payments that are intended to last the length of your new home construction - up to one year.

Your construction loan can be used to purchase a lot and pay for the home's construction, and you will only have to pay interest in segments.

The construction loan will be accessed gradually by the custom home builder, who can only take out a certain amount of money at a time, as specific parts of the home are completed.  

The construction lender reviews the progress of the home to determine how much of the loan they are willing to give the builder.

Construction Loans:  What About when the Home is Complete? 

Once your custom homebuilder has completed your home, you will need to get permanent financing, with terms up to thirty years. 

Typical permanent financing options include:

  • Conventional financing (80% of the appraised value or less)
  • FHA which requires only 3.5% deposit based on the sales price
  • USDA and VA which allow for 100% financing of the sales price. 

All of these types of financing options can be used to pay off construction loans. 

Construction Loans:  Is Construction Financing Available?

Yes, a variety of construction loans are available, with many different options and structures.  Call Brian at 919-256-3133 for more details.

Ask the Financing Expert Series

Stanton Homes continues to offer the information you're looking for.  Check back for more construction home loan and other financing questions from our new "Ask the Expert" column, where Brian Laible, Senior Loan Officer for Primary Residential Mortgage, will answer financial questions like "What type of down payment is required?" and "Are one time close products available?"  

Send us YOUR questions to "Ask Brian", and look to Stanton Homes for the answers you need.

sBrian Laible - Ask Brian!

Sr. Loan Officer, Primary Residential Mortgage

701 Exposition Place, Suite 118, Raleigh, North Carolina 27615


*Stanton Homes is not a lender, not offering lending advice, and is not affiliated with Primary Residential Mortgage.  For answers to lending questions, contact a trusted lender.

Tags: construction loans, ask brian, ask the financing expert series, construction to permanent