Construction Loans

Whether you’re looking at building from the ground up or just need to make a few modifications to an existing structure, a construction loan can be the best way to finance your next project. Since these loans pay out in increments, you won’t be on the hook for a large repayment if something goes wrong.

What is a Construction Loan?

A construction loan is financing meant to cover the costs of materials and labor needed to build a new property or fix an older property. Construction costs are notoriously difficult to estimate. Even if all the desired materials are available at a good price, permits and inspections can add unexpected expenses. If there’s an accident on the job or inclement weather, your new building could be put on hold.

This is where a construction loan...

has an advantage over a large lump sum loan. In the application phase, detailed plans must be submitted to the lender. Based on those plans, the lender and borrower agree on a set of milestones. After construction starts, one milestone has to be completed before funds are released for the next phase of construction. If work stalls on the project, the borrower is only responsible for repaying the milestones that have already been funded, not the full loan amount.

What is a Construction Loan?

A construction loan is financing meant to cover the costs of materials and labor needed to build a new property or fix an older property. Construction costs are notoriously difficult to estimate. Even if all the desired materials are available at a good price, permits and inspections can add unexpected expenses. If there’s an accident on the job or inclement weather, your new building could be put on hold.

This is where a construction loan has an advantage over a large lump sum loan. In the application phase, detailed plans must be submitted to the lender. Based on those plans, the lender and borrower agree on a set of milestones. After construction starts, one milestone has to be completed before funds are released for the next phase of construction. If work stalls on the project, the borrower is only responsible for repaying the milestones that have already been funded, not the full loan amount.

Land Prep

Before any foundation can be poured, the land has to be leveled and graded. Utility infrastructure needs to be installed. A construction loan can be used to cover land prep before development begins.

Ground Up

Whether it’s homes, retail space, or offices, building from scratch is the best way to customize the end product. A construction loan can cover everything from the minute you break ground to cutting the ribbon.

Fix It

Not all construction projects involve building an entire structure. Sometimes, all you need is a few extra rooms or a new roof. A construction loan can cover building projects of nearly any size or scope.

Advantages of Construction Loans

01

Borrowers only need to repay the milestones that were financed.

02

Some construction loans will roll over into long-term financing like a mortgage.

03

Loans can be used for new construction or smaller projects.

04

Some loans require only interest payments while construction is underway.

FAQ

When is a construction loan not a good fit?
A construction loan may not be suitable for smaller projects like patching a leaky roof.
Do I need good credit to qualify for a construction loan?
Our broad lender network allows us to match you with a lender that will accept your credit score. A FICO score of 680 or higher assists in this process, but many times our lenders will be satisfied using another property in your portfolio to secure the loan.
How do I apply for a construction loan?
You’ll need to take a list of contractors, a materials list, a timeline, and blueprints in addition to your financial records to present to a potential lender.
What if I want to build it myself?
If you intend to act as your own general contractor, it may be more difficult – but not impossible – to secure a construction loan. Most lenders consider this a riskier investment and require higher down payments and interest rates.