Planning to build your home from the ground up? New home construction loans help make that possible by covering costs throughout the process. Pre-qualify now call 888-573-2640 to get started.
What are new home construction loans?
New home construction loans help fund residential properties from the ground up. These short-term loans cover everything you just need from buying land to completing the structure, including labor, materials, and permits.
How construction loans work
Construction loans work quite differently from standard home financing. Clear Rate Mortgage explains to clients that these loans disburse funds in stages called "draws" instead of giving all the money upfront.
Each draw matches a specific construction milestone like laying the foundation, completing the framing, or installing plumbing systems.
Lenders usually check each phase's completion through inspection before releasing payments. Most construction phases take between 12 to 18 months, though some projects might run longer.
Borrowers make interest-only payments during this time, and you'll only pay interest on the amount used not the entire loan amount.
The loan must be paid off completely or converted to a permanent mortgage once you get a certificate of occupancy.
How they differ from traditional mortgages
Construction loans are nowhere near similar to conventional mortgages.
These loans come with:
- Higher interest rates: Construction loans charge higher rates than traditional mortgages because of increased lender risk
- Shorter terms: Construction loans last only 6-18 months while mortgages run for 15-30 years
- Different approval requirements: Clear Rate Mortgage checks your construction plans, timeline, budget, and builder's qualifications along with credit and income verification
- Unique payment structure: Construction loans usually need interest-only payments during building, unlike mortgages that start with principal and interest payments
These loans also just need larger down payments usually 20-25% compared to smaller down payments available with some mortgage options.
Clear Rate Mortgage understands that new home construction loans can feel overwhelming. So, we work closely with inspectors and contractors throughout the building process to keep projects on track and within budget.
Our construction loan specialists help you through every stage, from application to the final draw and possible conversion to permanent financing.
Types of new home construction loans
The right financing option plays a significant role in building your dream home. Clear Rate Mortgage provides several types of new home construction loans that match different building scenarios.
Construction-to-permanent loans
These "one-time close" loans create a simplified path from building to homeownership. The loans merge construction funding and permanent mortgage into a single package.
You'll only need one application and one closing process. This approach helps you save money on closing costs and locks in your future mortgage rate.
Your payments during the construction phase remain interest-only, based on the funds drawn so far. The construction typically takes 12-18 months.
The loan transforms into a traditional fixed-rate mortgage once your home is complete, with terms ranging from 15 to 30 years.
Clear Rate Mortgage clients value these loans because they remove the uncertainty of getting separate permanent financing after construction.
How to qualify for a construction loan
Clear Rate Mortgage offers a straightforward path to fund your custom home construction. Here's what you need to know about qualifying for new home construction loans in five significant steps.
Get prequalified
Your journey starts with a loan officer who will assess what you can borrow before your project begins. This vital first step helps set your budget and spots any roadblocks early.
Clear Rate Mortgage looks at your credit score (you'll need 680+), how stable your income is, your debt-to-income ratio (which should stay under 43%), and your down payment to figure out your prequalification amount.
Submit your application with plans
After prequalification, you'll need to submit your formal loan application with your construction documents.
Your package needs architectural blueprints, a complete budget breakdown, construction timeline, and your builder's credentials.
Clear Rate Mortgage will review everything to make sure your project makes sense.
Undergo loan approval and documentation
Your application moves to underwriting where lenders will get a full picture of your finances. An appraiser will determine your future home's value based on your plans and similar properties in the area.
Understand the draw schedule
A draw schedule shows how money flows during construction. Payments line up with key milestones such as finishing the foundation or framing. Each payment needs inspection verification before release.
Prepare for closing and disbursement
The final step involves reviewing your loan terms before closing. You should understand your closing costs and know what you'll need to pay during construction.
Clear Rate Mortgage Makes New Home Construction Loans Simple
At Clear Rate Mortgage, we make new home construction loans easier to understand and manage. With transparent steps, fast responses, and guidance built around your needs, our team helps turn complex processes into clear, confident decisions without the stress or overpromises.
Whether you're still exploring or ready to move forward, we’re here to support every step of your build.
Pre-qualify now! Call us at 888-573-2640 to get started.
FAQs
1. Can I use a construction loan to build on land I already own?
Yes, you can often use land you already own as part of the loan setup. It may help reduce how much cash you need upfront.
2. What happens if my construction project takes longer than expected?
You may need to request an extension or update your loan terms. Lenders usually review the situation and adjust based on progress.
3. Do I need a builder before applying for a construction loan?
Yes, having a licensed builder in place is usually required early in the process. This helps lenders feel confident in your project.
4. Can I get a construction loan if I’ve never owned a home before?
Yes, first-time builders can apply for construction loans too. The process just requires careful planning and the right support team.
5. Is it harder to get approved for a construction loan than a regular mortgage?
It can feel more involved since construction loans need extra details. But with good guidance, the steps become easier to manage.
