What is a construction loan mortgage?


A construction loan mortgage refers to financing obtained to have a house built, rather than purchase an all-complete unit.

Ways To Finance Construction

Sometimes a construction mortgage will refer to a single short term loan taken for the construction period; or it could signify combined financing obtained for both building and purchasing the house. If the construction loan will span only the construction period of 6 to 12 months, the builder may decide to take it on behalf of the borrower. Later, the borrower will take a permanent mortgage and repay the builder.

The borrower may also choose to shop for two loans, or for a single construction to permanent loan.

Shopping For Construction Loan Mortgage

If you are shopping a combined construction to permanent loan with one lender, certainly you will save on closing costs if the lender has competitive costs. Also, they will be packaged together and will come cheaper with combined discount points and lender fee.

If you are trying two separate construction mortgage loans with different lenders, you may not only have to pay double closing costs, but will gain no discount. However, it is possible to shop different lenders for separate construction and permanent loans. It is recommended that you do that through a reliable mortgage broker. Since they usually work with tens of lenders, a broker will be able to locate the best construction financing, separate or combined, much quicker than if you do it on your own browsing the web and pulling GFEs.

If you decide to go with the builder funding the short term construction loan, probably your house will be overpriced. It does provide incentive for the builder to work faster but construction financing will be included in the house price and you will not know what the exact cost of the house is.

Chances are a combined construction mortgage will have the best gains for the borrower.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
Was this Mortgage QnA helpful?
Not at all
  • Currently 2.9/5 Stars
  • 1
  • 2
  • 3
  • 4
  • 5
Add to this Answer

Mortgage QnA is not a common forum. We have special rules:

  • Post no questions here. To ask a question, click the Ask a Question link
  • We will not publish answers that include any form of advertising
  • Add your answer only if it will contrubute to the quality of this Mortgage QnA and help future readers
If you have trouble reading the code, click on the code itself to generate a new random code. Verification Code Above:
Bookmark and share this QnA: