New Home Construction Tips!

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Real Estate

New Home Construction Tips!


With the inventory shortage, many buyers are considering building a new home. To help understand this process here are the ABCs of Construction Loans


1. Start with a lender that specializes in New Construction Loans.

How do I qualify?

Since construction loans are riskier for your lender, you will need a higher down payment, usually 30% because there is no existing collateral in the form of the home. The typical requirements for debt-to-income limits and FICO score minimums will also factor into qualifying for a construction loan. 

2. What is a construction loan?

A construction loan is a short-term mortgage that cover the cost of building or home renovations.  Buyers qualify for the final mortgage and the lender pays the construction costs on a pre-approved schedule, called draws.  Once the construction is complete, the loan is converted into a traditional home loan.

3. Types of Construction Loans:

Construction to Permanent – Converts to a permanent loan with the interest rate locked in at closing.
Construction Only – Must be paid off when construction is complete, so the borrower will then need to get new financing.
Renovation Construction Loan – Cost of renovations are included in the original mortgage based on the value of the home after the repairs or upgrades. Best used for buying a fixer-upper property.

4. What’s included in the loan?

The construction loan generally pays for:

Land or Lot
Labor and materials
Plans, permits, and fees
Contingency reserves to allow for changes and delays.

With the lack of inventory of existing homes and new construction, building your dream home is possible, with the assistance of an experienced Realtor, Builder, Designer, Lender and Title Company.


For more information on building your dream home, call/text or message me at #317-407-5889 or