: This loan automatically converts into a long-term mortgage (15 or 30 years) once the house is finished. It is popular because you only pay closing costs once.
: Funds are released to your builder as they complete milestones, such as laying the foundation or finishing the framing. Lenders often require an inspection before releasing the next draw. construction financing
: Most lenders look for a DTI ratio below 45% . : This loan automatically converts into a long-term
Because there is no finished house to serve as collateral, qualification is stricter than for standard mortgages. Lenders often require an inspection before releasing the
Construction financing is a short-term, high-interest funding method used to cover the costs of building a new home or commercial property from the ground up. Unlike a traditional mortgage, which provides a lump sum to buy an existing home, construction loans are disbursed in stages—known as "draws"—as specific building milestones are reached. Core Concepts of Construction Loans