expand Skip to content holdbardesigngroup.com Menu How Do Construction Loans Work? Posted on October 9, 2022 by Edgar Johnston Construction loans are mortgage loans that cover the costs of both the land and the construction of a property. They can be paid back in installments, but they are structured in a way to limit risk. Typically, a $200,000 construction loan will be broken down into five payments of $40,000, each corresponding to a milestone on the project. When a milestone is reached, the builder will
The purpose of a construction loan is to fund the building process of a new home. The construction mortgage must be paid back after the building project is completed. The borrower can choose to sell his or her existing home and live in a rental while the construction is underway. Alternatively, he or she can use the equity in the land as a down payment. Once the construction project is completed, the borrower can convert the construction loan into a permanent mortgage. Then, after a year, he or she can appl
The application process for a construction loan is very similar to a mortgage application. The lender will review the borrower’s income, assets, and debts. To help ensure that he or she can repay the loan, the borrower should provide financial statements, tax returns, W-2s, and credit reports. Depending on the amount of funds that the borrower needs, the down payment may be less than the total cost of the home.