Where to get construction loan

Refinancing now could save you thousands over the life of your loan. Get started below to see how Rocket Mortgage can help. A construction loan is a short-term loan that covers only the costs of custom home building. Once the home is built, the prospective occupant must apply for a mortgage to pay for the completed home. However, there are several other loans available when it comes to home building, from ground-up building to a complete remodel of the entire house.

This type of loan is short-term and is usually issued for a year. Construction-to-permanent loans are a financing option that prospective custom home builders can apply for.

Like construction-only, construction-to-permanent financing are one-time loans that fund construction and then convert into a permanent mortgage. During the construction phase, borrowers make interest-only payments. These types of loans can be much more expensive than traditional mortgages, so if you decide to go in this direction, shop around, compare rates and find the best deal before you pull the trigger.

Renovation loans, also known as k loans, can be used for home renovation and are insured by the Federal Housing Administration FHA. This allows borrowers to both purchase and renovate their new home while still making one monthly payment to cover both costs. However, Rocket Mortgage does offer a cash-out refinance , which can be a different path to getting home renovations done. No matter what you want to change about your home, there are plenty of options to get the financing you need to start swinging that sledgehammer.

They make sure the framing people, the tile people, the wood floor people, the painters and so on all work in coordination to get your home completed ideally on time and on budget. However, some prospective home builders wish to act as their own general contractor, and some banks offer owner-builder loans just for this purpose. Why we like it Good for borrowers who want a loan officer's help, in person or on the phone, when deciding among the wide range of available mortgage options — including loans to buy and renovate.

Pros Offers a full array of mortgage products, including government and renovation loans. Cons Doesn't post interest rates on its site. Why we like it TD Bank Mortgage gets high marks for its variety of loan products and mortgage types, and excels at online convenience, but could make it easier to find mortgage rates on its site. Cons Available only in states on the East Coast. Why we like it Good for: borrowers looking for closing cost assistance, as well as those seeking to renovate or to build a new home.

Pros Full online application includes document uploads and automated loan updates. Cons No online mortgage rates — you have to contact the lender for info. Why we like it U. Pros Offers a full line of conventional and government loan products.

Cons No personalized mortgage rates available online. Pros Offers a variety of low-down-payment mortgages as well as construction mortgages.

Has an online mortgage application. Cons Branches limited to mostly the Southeast region. Does not offer FHA loans. Last updated on May 5, Bank National Association.

Deposit products are offered through U. Member FDIC. Equal Housing Lender. Skip to main content. About us Financial education. Support Locations Search. Before you go, be sure you know: This link takes you to an external website or app, which may have different privacy and security policies than U.

You are here:. Talk to us about loan options for your new home construction. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site.

While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. This content is powered by HomeInsurance. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions such as approval for coverage, premiums, commissions and fees and policy obligations are the sole responsibility of the underwriting insurer.

The information on this site does not modify any insurance policy terms in any way. The process of borrowing the money to pay for this project is different from getting a mortgage to move into an existing property. A home construction loan is a short-term, higher-interest loan that provides the funds required to build a residential property, explains Janet Bossi, senior vice president at OceanFirst Bank in New Jersey.

A construction loan can be used to cover the cost of the land, contractor labor, building materials, permits and more. While items like home furnishings generally are not covered within a construction loan, permanent fixtures like appliances and landscaping can be included. Construction loans usually have variable rates that move up and down with the prime rate, according to Bossi.

Construction loan rates are typically higher than traditional mortgage loan rates. With a traditional mortgage, your home acts as collateral — if you default on your payments, the lender can seize your home.

Unlike personal loans that make a lump-sum payment, the lender pays out the money in stages as work on the new home progresses, says Bossi. These draws tend to happen when major milestones are completed — for example, when the foundation is laid or the framing of the house begins. Borrowers are typically only obligated to repay interest on any funds drawn to date until construction is completed.

While the home is being built, the lender has an appraiser or inspector check the house during the various stages of construction. If approved by the appraiser, the lender makes additional payments to the contractor, known as draws. Expect to have between four and six inspections to monitor the progress. Depending on the type of construction loan, the borrower might be able to convert the construction loan to a traditional mortgage once the home is built.

This is known as a construction-to-permanent loan. If the loan is solely for the construction phase, the borrower might be required to get a separate mortgage designed to pay off the construction loan.

Construction-to-permanent loans — sometimes called single-close loans — provide the funds to build the dwelling and for your permanent mortgage as well, explains Bossi.

In other words, with a construction-to-permanent loan, you borrow money to pay for the cost of building your home, and once the house is complete and you move in, the loan is converted to a permanent mortgage. The benefit of the construction-to-permanent approach is that you have only one set of closing costs to pay, reducing your overall fees.