How does a home construction loan work?
What is a Construction Loan and how does it work? A home construction loan is a brief, higher-interest loan used to finance the construction of a residential building. Construction loans typically have a one-year term. Within that period, the building must be finished, and an occupancy certificate must be issued. ● The borrower submits financial information, plans, and project schedules in order to apply for a construction loan. ● After receiving approval, the borrower begins to draw money for each stage of the project, usually only paying interest while it is being built. An appraiser or inspector evaluates the build as it progresses to approve more funding. ● Once the building is complete, the borrower often converts the loan into a permanent mortgage and starts making principal and interest payments. Construction loans typically have variable interest rates that fluctuate with the prime rate. Loan rates for construction projects are frequently higher than