1. What is a construction loan?
ü Is a short term loan used to pay for the construction of a project such as a residential home
2. How does a construction loan work?
ü It acts like a large line of credit. Proceeds are disbursed gradually as work progresses on the project.
3. Do I make payments on the construction loan during construction?
ü No, interest payments are made on the construction loan during construction through the interest
reserve account that was set up at construction loan closing. You have the option to make monthly
interest payments if you choose to.
4. How does the money get disbursed from the construction loan?
ü There are two draws submitted each month by the builder in order to pay the subcontractors for the
work that has been completed on the project during that month
5. How much money do I need to bring to construction loan closing?
ü Minimum amount due from borrower is 5% of cost to build or sales price with builder
6. What terms are available for construction loans?
ü 6 months is the normal term but we can extend it to 9 or 12 depending on how long the builder thinks it
will take to complete the home.
7. What would my interest rate be on the construction loan?
ü Interest rates will vary and will be determined when the application is submitted since the interest rate
for this type of loan are connected to the Prime Rate.
8. How long will it take to process my construction loan application?
ü From start to closing on the construction loan can take anywhere from 10 to 15 business days.
9. How is the value determined on the home since it is not built yet?
ü Appraisal is completed off the plans and specs that you have decided on with your builder.
10. When do I know is a good time to make sure my long term financing is in place?
ü Long term financing will be credit approved at same time as the construction loan is going through the
approval process. Long term documents will need to be updated when home is about 80% completed.