Clear Rate Mortgage makes getting construction loans for homes straightforward. Pre-qualify now and call 888-573-2640 to start your journey.
What are construction loans for homes?
A solid grasp of construction loans for homes helps you make smart financing decisions when building your dream house.
These specialized financial products help fund your residential home's journey from an empty plot to a finished structure.
How construction loans work
Construction loans for homes are quite different from standard mortgages. The money comes in stages called "draws" that match your project's progress.
You receive these payments after completing major milestones like finishing the foundation, framing the house, or setting up plumbing systems.
Most lenders want an inspection before releasing each draw payment. They need proof that everything matches the plan.
Our team at Clear Rate Mortgage knows this needs everyone working together with your builder, inspector, and loan officer.
Your payments stay manageable during construction since you only pay interest on the amount used so far. The loan's original term usually runs between 6 to 18 months. This gives you time to complete your project.
When to think over a construction loan
You'll need construction loans if you want a custom home instead of buying an existing property.
Our team at Clear Rate Mortgage suggests these specialized loans if you want to:
- Build a home that matches your exact vision
- Put up a house on land you own or plan to buy
- Fix up or rebuild an existing structure
- Design a custom home away from planned developments
These loans make sense when regular mortgage options don't fit because there's no existing home yet. Once construction wraps up, you can pay everything off or switch to a permanent mortgage.
Our Clear Rate Mortgage team helps direct clients through these financing options. We turn construction plans into reality with our optimized application process.
Types of construction home loans
Building or renovating a home requires choosing the right financing option. Clear Rate Mortgage provides construction loans for homes that fit different building projects and financial situations. Here's a look at the main types to help you make an informed decision.
Construction-to-permanent loans
These loans combine construction funding and long-term mortgage into a single loan product. People often call them "one-time close" loans because they need just one application and one closing. This saves both time and money on closing costs.
The loan starts by funding your construction phase with interest-only payments based on drawn amounts. Your loan automatically becomes a traditional mortgage once your home is complete usually with terms of 15 to 30 years.
Our clients prefer construction-to-permanent loans because they're simple to manage. These loans let you lock in your permanent mortgage rate early and protect you from rate increases during construction.
Stand-alone construction loans
Stand-alone construction loans fund only the building phase of your project. People also know them as "construction-only" or "two-close" loans.
These short-term loans last 6-18 months and release funds through scheduled draws as building moves forward.
The biggest difference shows up after construction ends.
You'll need a separate permanent mortgage to pay off the construction loan. This means two loan applications and two closings.
The extra step comes with benefits. Stand-alone construction loans give you freedom to look for better mortgage rates after completing your home.
Renovation and remodel loans
Homeowners who want to upgrade their properties can use renovation loans. These loans work based on your home's predicted value after improvements.
Renovation construction loans cover everything from basic repairs to major structural changes. You can borrow against your home's future value once the renovations are done.
Clear Rate Mortgage creates flexible renovation financing options that match your specific remodeling goals. We help with projects like kitchen updates, room additions, or complete transformations of older homes because every renovation project has its own unique needs.
Requirements for a construction loan
Getting a construction loan for your new home isn't the same as a traditional mortgage. You'll need to meet specific requirements.
Our team at Clear Rate Mortgage will guide you through these qualifications to boost your approval chances.
Construction plan and cost estimates
Your loan application needs detailed project documentation. This includes architectural blueprints, a complete budget, and project timeline.
The "blue book" should cover everything from floor plans to material specs. We suggest having these details ready before you apply to speed up the process.
Understanding the construction loan process
The construction loan process has several vital phases from the original concept to final home completion. Clear Rate Mortgage guides clients through each stage to create a simplified experience.
Prequalification and budgeting
You should secure prequalification before moving forward with your planning. This vital step determines your budget and sets the direction for your project.
Lenders review your financial health including credit score, income, existing debts, and available down payment during prequalification.
A realistic construction budget that accounts for land costs, hard costs (materials, labor), and soft costs (permits, design) helps prevent financing shortfalls.
Submitting your application
Your formal application needs detailed documentation after prequalification. You'll need personal identification, proof of income, employment verification, credit history, construction plans, contractor estimates, and proof of insurance.
Clear Rate Mortgage suggests preparing a detailed project plan with architectural blueprints, budget, construction timeline, and your builder's contract.
Loan approval and documentation
Lenders review your application to assess your creditworthiness and project feasibility. Property appraisal determines both current land value and predicted finished value based on your plans and specifications.
You'll sign loan documents and provide your down payment at closing after approval.
Draw schedule and disbursements
Funds release according to a predetermined draw schedule arranged with construction milestones. Inspections verify completed work according to plan before each disbursement.
Clear Rate Mortgage ensures timely disbursements keep your project moving forward smoothly.
Final conversion to mortgage
Your construction loan converts to a permanent mortgage once construction finishes and passes inspections. This change needs a final inspection and certificate of occupancy.
Your payment structure shifts from interest-only payments to standard principal and interest payments based on your predetermined mortgage terms.
Clear Rate Mortgage and Construction Loans for Homes
Clear Rate Mortgage makes getting construction loans for homes a smoother, more confident experience. We keep the process clear with transparency, fast communication, and client-first guidance from your first question to your final loan conversion.
Whether you’re building new or renovating, our team is here to help you move forward with confidence without unnecessary delays or confusion.
Call us at 888-573-2640 to learn more and pre-qualify now!
FAQs
1. Can I use a construction loan for a vacation home?
Yes, some construction loans can be used to build a second home or getaway property. Your lender will review the purpose and location to confirm eligibility.
2. Do construction loans cover land purchase costs?
In many cases, you can include the cost of the land in your construction loan. This allows you to finance both the lot and the building process together.
3. Can I change my building plans after the loan is approved?
Small changes may be allowed if they fit your budget and timeline. Larger adjustments could require lender review and updated approvals.
4. Are there construction loans for self-built homes?
Some lenders offer programs for people who want to act as their own builder. These loans often require proof of relevant experience and a detailed project plan.
5. How do I prepare for a construction loan appraisal?
Make sure your plans, budget, and timelines are complete before the appraisal. A clear package helps the appraiser estimate the finished home’s value accurately.
