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A Guide To Construction Loans

September 29, 2020

To Build, Or Not To Build, That Is The Question.

William Shakespeare never did have to consider such things as home construction loans but in today's market, many people are choosing to build, instead of buy, their dream home. If you are like most Americans, you may not have the cash on hand to pay for the project. This is where home construction loans can help. Read below to learn what a home construction loan is, the different types available, the expenses they can cover, and how a home construction loan through SunMark may be a great option for you.

What is a Construction Loan?

A home construction loan is generally a short-term loan that provides the funds required to build a residential property. These loans are for short-term durations, during which time the property must be built. The loan is paid out through draws that follow the construction stages. During the building stage, many construction loans only require minimum payments to be paid. Once the building is complete home loans are either converted to long-term mortgages or paid in full, depending on the type of construction loan you use.

Construction Loan Types

  • Construction-to-permanent loans

With a construction-to-permanent loan, you borrow money to pay for the cost of building your home, once the house is complete and you move in, the loan is converted to a permanent mortgage. With this type of loan, you only close once. Once the loan is converted into a permanent mortgage with longer terms, regular monthly payments are required.

  • Construction Only

A construction-only loan provides the necessary funds to complete the building of the property, but the borrower is responsible for either paying the loan in full at maturity or obtaining a mortgage to secure permanent financing.

  • Owner-Builder Construction Loan

Owner-builder loans are construction or construction-only loans where the borrower also acts in the capacity of the home builder. These are rare to receive unless the borrower is a licensed builder by trade.

If you are looking to renovate or remodel your current home instead of building it, consider a home equity line of credit or home equity loan.

What does a Construction Loan Cover?

Every project is different, but in general, a construction loan pays for:

  • Land
  • Permits and fees
  • Labor and materials
  • Contingency reserves (in case the project costs more than estimated)

Construction Loan Considerations

Construction loan qualification is like a mortgage qualification with some added requirements. Your lender will look at credit, employment, and debt-to-income, but also will want to review the plans and contract that the borrower has agreed to with the builder. The total cost of the project will need to be established before a loan amount can be determined.

Home Construction Loans with SunMark

Subject to credit approval, SunMark offers residential building financing options. Our lenders have decades of experience handling these loans and can meet with you in person or virtually to walk you through the process.

A Construction Loan with SunMark Offers:

  • Regular monthly payments during the construction phase of the loan
  • A seamless transition from construction loan to permanent mortgage through SunMark Mortgage*
  • Attentive and knowledgeable lenders to help guide you every step of the way

Consult with a SunMark Mortgage Lender today to learn if a Construction Loan is right for you!

* Subject to credit approval