What is a construction loan?
A home construction loan is a short-term loan that provides the funds required to build a residential property.
These loans are usually one year in duration, during which time the property must be built and a certificate of occupancy issued.
A construction loan can be used to cover the cost of the land, contractor labor, building materials, permits and more. It’s important to discuss these items with your Loan Officer at Intercoastal Mortgage, LLC, specifically what will be included in your loan.
How do construction loans work?
Once approved, the loan will contain a payment schedule to the builder/contractor (also known as a draw schedule) that follows the project’s construction stages. You are required to make interest only payments during construction on the outstanding loan balance. Unlike personal loans that make a lump-sum payment, Intercoastal Mortgage, LLC pays out the money in stages as work on the new home progresses. While the home is being built, Intercoastal Mortgage, LLC will have inspections completed by an independent third party to ensure the work is completed prior to releasing any requested funds from your loan. You are only obligated to repay interest on any funds drawn to date until construction is completed. There isn’t escrow collection on construction loans, so taxes, insurance, and all other costs are billed to you directly.
How to get a home construction loan
At first glance, getting approval for a construction loan appears similar to the process of obtaining a mortgage. However, it does come with a few more requirements.
Prior to making an application for a construction loan, you should have an idea of your project budget at minimum.
Our Intercoastal Mortgage, LLC loan officers review a borrowers’ employment history, savings, income stability and ability to repay the loan. A property appraisal will also be obtained to support the value of the collateral.
To qualify, you’ll likely need:
- Good to excellent credit
- Stable income
- A low debt-to-income ratio
- A down payment (amount varies by program)
Finding a home construction loan lender
Because construction loans are more complex transactions than a standard mortgage, it is best to find a lender who specializes in construction lending and isn’t new to the process. That’s why Intercoastal Mortgage, LLC should be your first call. Our loan officers are experienced with construction loans and are aided by a dedicated construction department.
Contact us today to learn details about our specific programs and procedures.
As a direct lender, we control the process from start to finish. We make the loan decision and our construction loans are processed, underwritten, and closed in-house locally. Our veteran team of loan officers and mortgage professionals are equipped with a level of experience that is second to none.
Process at a glance
A full loan application for pre-qualification is made with all required documentation
Identify the desired lot and write a contract to buy it. If you already own the land, skip to the next step
Selections: choose a floor plan and make selections to finalize your build – sign the contract with your builder.
Your Intercoastal Mortgage, LLC Team will order your appraisal based on your build contract land contract (lot purchase)
Your loan approval is issued and then your construction loan closing is scheduled
Once the construction loan closes, your build begins – funds are disbursed to your builder based an agreed upon schedule
Construction is completed and you’re ready to move in!