Construction Loans

A construction loan is a short-term loan that is made to pay the builder, suppliers and subcontractors as the home is being built. It can be obtained by either you or your builder. About 60% of new home builders will require you to get the construction loan.

This first step is to be pre-approved for your mortgage. This means a real pre-approval where you have provided your tax returns, bank statements, paycheck stubs and credit report fee. The written pre-approval can be given to your builder to take to his bank to initiate the construction loan, or your lender can use it to give you both the construction and final mortgage. Then, a property appraisal is completed - yes, there is an existing home there. The blueprints and specification sheet are used to make sure the new home is worth what you are paying for it, even before you build.

If you are the one obtaining the construction loan, you sign the mortgage paperwork. The length of time for the loan is usually 6 months to 1 year. The lender requires a fee to administer the paperwork. There are draws given to the builder as the home is being constructed. This draw schedule is negotiated between you and your builder and becomes part of your contract.

But, this is where the appraiser assists in this process. As the home is being built, the original property appraiser makes inspections to determine the amount of work completed and to make sure that the home is being built according to the original plans and specifications that were given up front.