How To Use Construction Mortgage Loans To Finance A New Property Constructing Project

4 Dec

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Construction mortgage loans are a short phrase loan that finances the price of constructing a new developing. Once the creating is completed the construction loan is paid off. Construction loans are meant to cover only the cost of building a new constructing. The loan is paid off when building is finished. The construction is normally paid from the proceeds of a typical mortgage loan.

Typically you only spend interest during the construction phase. When the construction is completed the balance of the loan is due. A certificate of occupancy will then be issued. A certificate of occupancy is issued by the local government. It certifies that the creating meets all the developing and zoning laws and is ready to be occupied.

When building a new home the loan is typically element of a construction-to-permanent financing system. With these the loan automatically turns into a mortgage loan after the certificate of occupancy is issued. With construction-to-permanent financing there is only one application and a single closing.

Construction loans normally have a variable rate of interest. The interest rate is usually tied to the prime rate or a similar brief term interest rate. In the course of construction you will only have to make interest payments. If you currently personal the land that the creating is going to be built on then you can use the land as equity on the loan.

If you presently own a house that you are selling you can use a bridge loan to raise the funds for a down payment on your new home. A bridge loan is a temporary loan. A bridge loan bridges the gap in between the price tag of your new property and your new mortgage in case your recent residence has not sold but. Your current property is employed to safe the bridge loan.

When you take out a construction loan you and the builder will agree to a draw schedule. The draw schedule is the schedule of payments that the builder will acquire. The draw schedule will be based on the diverse phases of the creating approach.

Construction mortgage loans tends to make the developing of new homes possible. With no them there would not be sufficient capital to finance new development. These loans are the mechanism that keeps the constructing industry viable. If you need to have a loan seek the advice of with your banker and your construction company to come up with a loan plan for your project.

66 Responses to “How To Use Construction Mortgage Loans To Finance A New Property Constructing Project”

  1. Val January 22, 2013 at 4:53 am #

    I’m wondering… Say your situation is Howard Hannah to fin a home. You’re approved for any 100,000 dollar home loan. Should you cant look for a house you like, do you need credit to possess a house designed for you? Or perhaps is that the complete different loan you have to make an application for?

  2. Emmett February 21, 2013 at 1:21 pm #

    I am beginning the process of applying for a commercial mortgage loan for an owner (me)-occupied retail property.

    I found a site and they say they will submit an application to 50+ lenders but they want $200 for the service. Am I getting ripped off?

    This is a legitimate question! I’m not shilling and please honest info and experiences! Thanks!

  3. Anja March 9, 2013 at 9:35 pm #

    I am about to start construction on a house and have my constrcution loan thru National City, they will also be the owner of the mortgae when the loan is converted at the end of construction. If NC is sold before the loan gets converted, will the new buyer of NC have to honor the details of the loan agreement I had with NC, or will I be at risk of having to redo the mortgage loan and potentially have to pay a higher interest rate?

  4. Alphonso March 15, 2013 at 7:40 am #

    We have pick out the home site and sign paper work to get started.
    But did not Know that we had to put money down. Are their mortgage loan that will help with down payments.

  5. Retta March 19, 2013 at 3:51 am #

    My husband and I are looking for our first home and have fallen in love with a house that is down to the studs in some areas in the middle of a remodel. The home has no structural issues – it is all cosmetic – but does need all new applicances (has none), new walls (70s style paneling in living room), new flooring (has concrete now) etc. Would we need to get a construction loan even though it is structurally okay? How would the mortgage process work for this?

  6. Warren March 19, 2013 at 8:58 am #

    For example, are the interest rates comparable? Would it be harder to get a construction loan?
    Oops, conStruction.

  7. Denver March 20, 2013 at 4:12 am #

    We just built our house. We got a construction loan that has a high interest rate and not the number of years we were looking for. We tried to refinance but Wells Fargo said they could not do it, yet. Does anyone know how long we have to wait?
    Good question. I did ask the rep from WF and he stated that he had never seen this before. So either he is new and did not know or he was lazy and did not want to find out.

  8. Marianela March 20, 2013 at 6:30 am #

    No new home construction, very few mortgage loans, but new banks are going up everywhere.
    Thanks everybody. I actually understand all this, what I do not understand is WHY SO MANY? Do we really need five banks on one city block, another branch of the same opening but half a mile away? It seems irresponsible to me.

  9. Pilar March 21, 2013 at 2:54 pm #

    My fiance and I are looking into building a new home on land that we already own. Should I get a construction loan or a regular mortgage loan? People have been telling me many different things and I just need some answers. What would be the benefit of getting one over the other?


  10. Georgette March 22, 2013 at 2:48 am #

    Dose anyone know were we can go to get a construction loans for earth sheltered house. Local banks tell us they would loan us the money if we would build a normal house. Please Help.
    Our home design meets all building codes.

  11. Ashanti March 22, 2013 at 7:51 am #

    It seems that interest rates are much lower for refinancing existing loans, as opposed to new loans. I have a construction loan which doesn’t expire for a few months, would it be better to refinance the construction loan to a permanent mortgage or do a construction to permanent conversion loan? Which will get me a lower interest rate?

  12. Nick March 22, 2013 at 11:11 am #

    Together my wife and I make about 80k a year, her credit score is 730 and mine is 577. We bought our lot for 55k and owe 40k on it. The only debt we really have is our current mortgage(we are considering selling). I am wondering if we can get approved with our current mortgage?

  13. August March 22, 2013 at 1:48 pm #

    We put a good faith deposit down,paid for the appraisal, and survey.We are approved,and have a Mortgage Loan Commitment letter.Now the broker isn’t communicating at all,and seems to not want to follow through.We have had 2 closing dates,but she always comes up with a reason it can’t be done.Can we transfer all we’ve done to this point to another broker,or mortgage company?
    Thank you for any help or advice you can give us.
    I am talking about the broker.This is a family owned real estate agency,so the agebt,and broker are tired into the same office.We have been put off by both the agent,and the broker.
    I actually just received a call from her,telling me the loan company she submitted our info to,and approved us, is no longer financing manufactured homes.
    I called and spoke directly to the loan company,and they never received any of our info,and in fact they only finance manufactered homes.So again,we were lied to by the broker.

  14. Brenda March 22, 2013 at 4:42 pm #

    My father is a home builder and says he can build me a house, including land, for 100K that will be worth around 150-160K. So I need 100K.

    I have excellent credit. I make 46K a year and have a 19K car that is paid off. The 19K car and the 17K in my bank account is what I am worth.

    Do you think this will be enough to get the 100k construction loan?

  15. Hershel March 22, 2013 at 11:25 pm #

    I currently have a home mortgage. I just purchased land to build a new home on. Can this interest also be deducted from my taxes or is only my home mortgage interest deductible?

  16. Era March 23, 2013 at 6:55 am #

    I have a mortgage loan and the bank was supposed to pay the builder or owner on a monthly baises and pay the last installment when I recived the building. Although I expressed my self on the phone and on an email that I need to make sure that the last payment should not be paid untill I offically recive the apartment. The bank whent on and payed the last payment and and the handover was supposed to be in December 08 I have still not recived my apartment?

    Can I sue?

  17. Geneva March 23, 2013 at 7:44 am #

    we are building a house and have been paying a construction loan (interest only) waiting for it to get rolled over into a permenant mortgage. we have not recieved any forms from the mortgage comany yet. will we?

  18. Alysha March 23, 2013 at 2:17 pm #

    Signed a contract with builder to include paying earnest money in order to buy lot and build home. Have not secured a mortgage loan but have pre qualified only. Couple days later got serious medical issues with an immediate family member that will eat half of my monthly income for an indefinite period of time, two years or more.

  19. Jenell March 23, 2013 at 5:45 pm #

    I want to build a new construction home. The loans I have researched want interest-only payments until the house is complete. That is impossible considering that would be as much as a house payment and I already have a hefty one of those! I will make a nice profit off my house once it’s sold but I can’t do that until my new home is built. And I can’t build my new house until…….you see my problem?! They also require $5K down. Can that be included in the one loan I get so I don’t have to take out two loans? I have to be overlooking something. I can’t imagine it’s this difficult for everyone who already owns a home and wants to build. Any tips or knowledge would be greatly appreciated!!

  20. John March 23, 2013 at 10:47 pm #

    We purchased a new mobile home and land. Our Mortgage/Construction loan closed the end of October and the home was not paid for until Mid November. We moved in the end of November after it was all set up and all the hook ups were done. I know November 6th is the date for second home owners.

  21. Dino March 24, 2013 at 5:28 am #

    I am from Puerto Rico; want to buy land in Salinas. Seeking loan or personal line of credit to purchase undeveloped land. I can only communicate via e-mail, as I am currently working in Africa (“Skype” calls from here to PR just don’t work and phone call is USD $4 per minute.) Would appreciate help in this regard. Thanks and blessings.

  22. Cathleen March 24, 2013 at 2:05 pm #

    If this is the case, then does the mortgage kick in to pay it all off?

  23. Isidro March 24, 2013 at 11:24 pm #

    We are getting a construction loan through Wells Fargo. We have bought land already and have a loan on it with another bank that we are going to roll over into the construction loan. Our loan officer told us that we have to get insurance on the whole loan amount but that doesn’t make since. Why do we need to have home owners insurance on land?

  24. Miquel March 25, 2013 at 9:40 am #

    My boyfriend and I are being gifted an old farm house from his father. Since we do not need to buy the house I don’t think we will need a mortgage loan. However, the entire inside needs to be gutted and rebuilt to make it modern inside. What type of loan would we need to do this kind of work? I think a construction loan is only for houses you are buying/building.

  25. Tiara March 25, 2013 at 9:31 pm #

    I own a piece of rural land in Southern California (Tehachapi) and I’d like to build my home there. Problem is, I’m currently homeless and living with AIDS, and my credit score is in the mid-600’s. I see all these ads on the net for mortgages at all-time lows, like, say, $300,000 for under $999 per month. I don’t want to spend more than $500 a month on a mortgage. I do have a job that would allow me to pay that much.
    The home I want to build is a geodesic dome house, kit cost around $30,000. The well, pump, and tanks will be about $10,000 to $20,000. Electrical generating system will start around $6,000 to $8,000.
    I figure on doing most of the construction myself (with friends and a couple of professionals helping) and I think I can do it for around $100,000.
    Is there anyone who can tell me if I’m being realistic to hope for a mortgage or construction loan for $500 per month?

  26. Dudley March 26, 2013 at 8:05 am #

    I would also consider a new construction loan,if I could do the same thing.

  27. Claudio March 26, 2013 at 7:48 pm #

    I’ve been approved for a mortgage loan but need a construction loan to build a home.
    In Texas. Great fica score 840 or higher. Have enough money in the bank. Have tried builder contact, waiting since month ago. A big lending company on-line bluntly told me that he didn’t know of any bank that was offering construction loans because of the way things are with the economy right now?

  28. Vince March 26, 2013 at 9:48 pm #

    My husband and I are 1st time homebuyers. We have been preapproved for a house loan, but are not having luck finding what we want. We have toyed with the idea of building our own. What are the differences between getting a preapproved loan and buying a already built house and going through getting a construction loan? Do you have to put money up front for a construction loan? Do you make mortgage payments while the house is being built, or do you wait until the house is completed? Is there a time frame that the house must be built within? If we were preapproved for a certain amount with a homebuyers loan, would we likely be preapproved for the same amount for a construction loan? What other differences should I know about? Since we are first time homebuyers we do not have much collateral (we do have some savings, but not a ton), would that affect our ability to get a construction loan?

  29. Isaac March 27, 2013 at 1:13 am #

    I’m interested in something like the HomeStyle mortgage where you get money rolled into the mortgage to help cover renovations. However, I noticed the requirements say you have to put about 3% down. Is it possible to get one of these mortgages without any money down?

  30. Jamila March 27, 2013 at 2:19 am #

    Will banks give you a mortgage on vacant land, just like they would a house?

  31. Vernon March 27, 2013 at 7:43 am #

    Home is unoccupied, no utilites, and is not owned by anyone. Newer home built in 1999 but construction company did not complete building it. How can I buy it?

  32. Markus March 28, 2013 at 12:09 am #

    I built a house in 2008 but have not been able to close on the home and secure a mortgage. The mortgage companies I have spoken with tell me that until my previous home is sold I will have to continue with a construction loan and a very high payment. Does anyone have any advice?

  33. Catarina March 28, 2013 at 5:25 am #

    My husband and I are 30 and 31 and have 3 kids. We’ve owned our home for 7 yrs and owe 65K plus a 40K equity line. We have no other debt except our 2 car loans. Our house is now worth at least 130K as is. We are having plans drawn up to add a second floor with our own money but would like to know the best place to get a construction/permanent financing loan for the addition. Our credit scores are 787 and 740 and my husband makes 65K a year and I make about 30K working from home. I’ve heard some online banks have great rates or would it be better to go with our mortage co. (WAMU) or the credit union we have our 2 car loans and equity line from? **Plus, my husband is a General Contractor and will be doing most of the work himself. Will that affect the payouts? Thanks!

  34. Lawrence March 28, 2013 at 7:05 pm #

    Is there data available on time required to obtain and close on FHA construction finance? Specifically for a hospital?

  35. Connie March 29, 2013 at 1:06 am #

    My husband and I are working with a builder of a subdivision we are planning on building in. We chose a home from the options this builder has for the sub. To get started on the house, we need to give him $5,000 down. However we do not have the funds saved so we are able to do a construction loan. I’ve heard so many things about construction loans and how the fees are horrible. Yet, its been so hard for me to find any information. Would the fees be that steep, even though we only need $5000 down? Is there any specific banks/companies out there that make this process easier that anyone would recommend? Any help or information would be greatly appreciated. Thank You!

  36. Chana March 29, 2013 at 8:22 am #

    I’m looking to put in a bid for a house that is being sold by the bank in AS IS condition and I am wondering what type of loan/ mortgage I would be looking to get. I’ve already walked through the home and checked out as much visually as I could. Any help of suggestions would be much appreciated.

  37. Reyna March 29, 2013 at 1:01 pm #

    Looking to buy some land, we need to know the differences between improved land and unimproved land before we look at purchasing. Improved land can be purchased with a 20/80 loan, unimproved land is 40/60. What are the differences for the loan? I don’t know if it makes a difference, but we are in TX.

  38. Kayla March 29, 2013 at 1:20 pm #

    I am currently in a construction loan with these guys. Not sure exactly what’s going on. Thanks!

  39. Tyson March 29, 2013 at 5:54 pm #

    We are getting ready to get a construction loan but we need to know if we put money down on just the loan or when we get the regular loan?
    First of all. To all the meanies out there. I’m not getting the loan tomorrow. I think that this is a fair question. When I say we are getting ready it means we have land and that we are collecting data to get a construction.
    So kiss my ….

  40. Pierre March 29, 2013 at 6:16 pm #

    I need some that can offer loans easily and hassle free

  41. Diego March 30, 2013 at 9:35 am #

    I own the lot, but do not own anything else. What type of loan should I get? I live in San Antonio, Tx.

  42. Danilo March 30, 2013 at 10:01 am #

    We want to buy a foreclosure that is very damaged cosmetically (no appliances, pee all over the hardwood floors and walls, smelly, ugly, etc.). Is it true that I need a construction loan for this type of purchase? If I have my down payment plus the money I need to make it livable, why would I have to get a construction loan at a higher rate. I just want a conventional mortgage on this.
    Also should I get the loan from my lender or from the bank that owns the home? Thanks,

  43. Evelyne March 30, 2013 at 2:39 pm #

    We fell behind after my husband, a construction worker had no work for 3 months. Also we acquired a med bill of $5000. We managed to work with our mortgage & our other car loan. We had to let one car go. Now more than 2 yrs later a collection co. I wanting more than our original loan. What can we do?

  44. Maurine March 30, 2013 at 7:45 pm #

    I recently applied for a second mortgage. Loan approved pending flood insurance. My first mortage did not require flood insurance since my home is not in a flood zone. Loan company said that FEMA stated that my home is in a flood zone. Is there something new in FEMA regulations?

  45. Kent March 30, 2013 at 7:57 pm #

    I’ve purchsed many, from various companies, and I’m a very good loan officer. It’s all about closing loans, and I’m looking for good opportunities from quality lead sources. Please help if you have any advice.

  46. Travis March 31, 2013 at 5:16 am #

    right now we rent a house and it is costing us 1100 a month. Its a big house. My wife and i would like to downsize and have lower monthly payments.

    we were looking at a first time buyers loan and a construction loan.

    How does either work.

  47. Jarred March 31, 2013 at 6:45 am #

    Is there a mortgage available for buying a home that isn’t built yet? Can you apply for it when you already have a pre-existing mortgage on a home you plan to live in until the new one is ready? Any help is appreciated! I plan to visit my banker later in the week, but I really don’t want to get my hopes up if there really aren’t any options for me.

  48. Henry March 31, 2013 at 3:49 pm #

    I am a Mortgage loan officer and recently paid for a Yahoo website. It is still under construction. I want an image of myself ( just like a pop up commercial) to start speakinig when visitors are directed to the opening page.

  49. Benny March 31, 2013 at 9:04 pm #

    I have a large piece of property (over 1-1/2 acres) that currently has a mobile home on it. I plan to live in the mobile home while a new home is being built.
    However, my contractor tells me that I may not be able to get a construction loan to build the house if I live on the property. Anyone have experience with this?

    It will be a while before I’m able to build, so I’m not ready to call up the various mortgage companies just yet.
    Thanks! The property is located in the state of Florida.
    Thanks. I do not need a loan at this time. I was just wondering if when I decided to get a loan if I would be able to live on site, or if it would make getting the loan more difficult.

  50. Danette March 31, 2013 at 9:31 pm #

    Mortgage free with alot of rehab and reconstruction work to be done.

  51. Willard April 1, 2013 at 12:24 am #

    My wife and I are refinancing our home. It looks like it will be done in a few weeks. We hope to use money we get out of the refinance to put down on a construction loan. Do you think we should wait to do something on the construction loan until after the refinance closes? What about getting pre approved for the construction loan?
    What if I just get pre-approved so that I can make an offer on a piece of land?

  52. Arnulfo April 1, 2013 at 2:11 am #

    In 2007, I paid interest on a construction loan, a mortgage and a loan on a RV. I’ve written off the interest on the RV loan in the past as I was told it is considered a second home. Can I write off the interest on all 3 or just 2?

  53. Rodney April 1, 2013 at 2:12 am #

    I’ve been preaproved for 300,000 to purchase a house, but i really want to build my own. I know that i can do it for less than that! The problem is that lenders don’t usually aprove constraction loans for first time homes. Any ideas?

  54. Ned April 1, 2013 at 10:30 am #

    a convetional loan and what happens if a church defaults on the loan ?Are there people on the note that are liable?

  55. Lavone April 1, 2013 at 12:26 pm #

    Me and my girlfriend want to buy and renovate a house. We want to get a mortgage that rolls in an extra 50 to 65 thousand dollars for renovations. Does anyone recommend a specific program or lender? (besides the FHA 203k)

  56. Ernest April 1, 2013 at 6:16 pm #

    I am purchasing a new construction home and it is getting closer to the final phase of the home being completed I still have about 3 months, but I need to know my options with financing. The home is about $180,000 I am self employed with a 680 FICO score I need 100% financing. I am married but my credit is 100 points higher than my husbands. What are my best options for a low monthly and on avg what will it be around?

  57. Lawrence April 1, 2013 at 7:58 pm #

    Hi, I have signed up for a new construction. Closing is 3 months away. I have loan approval from 2 lenders. Should I check couple of more lenders? Or would the credit check by them degrade my credit score? I need to finalize the lender 70 days before closing. How should I choose among the lenders?

  58. Danette April 2, 2013 at 2:36 am #

    If I wanted to purchase an existing home for 250K and make 30K in improvements how would that break down? Would a I pay the existing mortgage on the 250K and would the 30K be an additional payment??? Do they give that too you all at once or is it used as a type of line of credit? Any info would be appreciated..

  59. Dexter April 2, 2013 at 10:35 am #

    For Real Estate whether commercial or residential, refinance, construction, 2nd mortgage, investment, foreclosure buyback, secured or unsecured, personal, business, signature, and auto. If you can help please contact me via email me via my profile.

  60. Chantal April 2, 2013 at 11:44 pm #

    I already own one duplex which was purchased via conventional loan. I was given two lots of land and i am looking to build two sets of duplexes. I don’t have much to put down and wanted to know if I should get a business loan to build or what are some other options of financing.

  61. Bess April 3, 2013 at 3:41 am #

    The builder has accepted token amount and has not handed over legal documents for Bank loan. He has agreed to manage BANK LOAN. he may ask for 20 % amount prior to approval of Bank loan. wheather the 20% amount be given? I f the bank will take care for making agreement with builder for registering flat..
    I am talking about Mumbai India

  62. Margarite April 3, 2013 at 9:51 am #

    I would really like to take advantage of the first home buyers grant but will not have a deposit in time. I have looked at no deposit home loans but have heard they can be dangerous. Is that true?

  63. Wendell April 14, 2013 at 8:34 pm #

    I am trying to purchase an acreage that I want to build a house on. I own several small businesses and had some rough times a few years ago (for a few years) that have lowered my credit score. I don’t use credit for any of my businesses and am self employeed. I don’t have any credit cards (and haven’t in years). I have no outstanding loans at all (except an owner financed home that I’ve made my payments on for a few years now; I’ve paid it down from 125k to around 90k at this time) and a building that I also owner financed for a business that I owe 120k (paid 150k for it) on. The mortgage payments for these two are at 2600/month for both, together. What I’m looking at is an acreage that I want to build a home on. I’ll build the home myself, but I would like to get a mortgage on the land, which is 550k. I have 150k that I can put down on it in cash right now. My credit has nothing but old medical bills that are all paid off now and a couple of old personal loans that were paid off on time a few years ago. My scores are: 573,582,602. My vehicles are all paid off (should be conservatively be worth around 250k total on the vehicles, as I have several fully restored muscle cars and 5 newer vehicles as well). I have around 300k in commercial equipment in a warehouse (I buy and sell equipment) and I own my own trucks, equipment and tools to do any type of residential, small-medium commercial construction. I have about 20k/month in positive cash flow before personal expenses. Honestly: I’ve just never really used credit much and I don’t necessarily want to now, except that I don’t want to let this property get away from me (its priced at under 400/acre and is exactly what I want.). Any tips, hints, ideas out there? Thanks in advance.

  64. Elouise May 5, 2013 at 4:51 pm #

    I am a small business man and i bought a 2 stored building in Oklahoma City, i want to repair it for my business office. So i need some urgent commercial loans. Any suggestion will be appreciated .

  65. Chantal May 29, 2013 at 4:30 pm #

    We already own our land and want to build the home ourselves, using sub-contractors of course for the things that we don’t have any experience with. I don’t want to sound like an idiot when I call or meet with a mortgage company to achieve this loan. Anyone know of a good company to go with for this kind of loan? Or even the kind of loan that it would be? Thanks for any info you can give me!

  66. Candida June 20, 2013 at 2:42 pm #

    I paid $60,000 down on home when construction loan was turned into mortgage loan.

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