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Residential Construction Loans

How to Finance and Build Your New Home

construction loan infoChoosing the right construction lender for building your new house is the most important part of the construction process. Note that a construction loan contains many variables that can cost you time and money or cause unwanted delays. Understand these variables before you go shopping for a loan. Lenders tilt the table in their favor so you want to find the table with the least tilt.

Construction Loan Interest

The first consideration is the interest rate on the construction loan. Construction loan interest floats with an index similar to prime rate so your rate may change during construction. Interest is paid on the outstanding balance of the loan, and the rate may be adjusted at any time if the index changes. In times of rising interest rates this can create an unexpected additional expense and you will want to plan accordingly.

Shopping for a Construction Loan

Learn how to shop for a construction loan and compare loan offers from several banks. Follow your bank loan each step of the way from including the construction contract, the loan application, the appraisal, the closing, and the construction loan draw process.

Loan Calculator

Use the loan calculator to compute your monthly mortgage payment to see how much you can afford.

Construction Liens

Understand the terms for a contractor, sub-contractor and the risks of construction loan liens. Educate yourself about how construction loans work before venturing into any construction project.

Construction Documents

Review the construction loan documents used during construction. You will want to understand the purpose of each document in helping to keep the construction process on track. Construction loans can present a considerable risk to the borrower and you should understand how to protect yourself.

Residential construction loans are difficult to obtain and you will want to apply to a lender that can get your deal done. Get several offers from qualified construction lenders so that you have a choice.

Jul 14, 2021
Lumber Wipes Out 2021 Gain With Demand Ebbing After Record Boom
Marcy Nicholson
Lumber, which at one point was among the world’s best-performing commodities as the pandemic sent construction demand soaring and stoked fears of inflation, has officially wiped out all of its staggering gains for the year.
Prices at Monday’s close are now down 0.6% for the year as demand eases and supply expands in response to earlier gains. More info...

Jul 12, 2021
Construction Loan Agreement
Builder Responsibilites During Construction
The Construction Loan Agreement sets for the responsibilities of the builder contractor during the administration of a residential construction loan. Here is a sample form that is typical of what is used by lenders. This form is signed by all parties to the loan including the owner and the builder. More info...

Jun 12, 2021
Residential Construction Specifications Form (Sample)
Residential Construction Forms
Construction loan specifications detail the materials to be used in the construction of a house.

The list of construction specifications will include every variable in the construction of the house such as flooring in each room, bathroom features, and kitchen details.

Free Construction Specifications Form click here(PDF)

Jun 12, 2021
Construction Draw Schedule
Sample Copy
Construction Draw Schedule
Residential Construction Loan Draw Process
Construction Loan Disbursements - Sample Copy here
It is always a good idea to get a construction loan from a construction loan lender that will disburse the funds to the builder rather than you as the borrower. This assigns the responsibility for the disbursement of funds to the lender and assures professional inspections as the construction progresses. Construction loan lenders construction draw schedule have strong requirements for the disbursement of funds that will protect you as the homeowner. The lender assumes fiduciary responsibility for correct administration of the construction fund.

Benefits of a Construction Loan
A construction loan should be used even if you ultimately will pay cash for the house. You do not want to get into the business of personally making periodic payments to your builder. It will only end in litigation and be costly to you. At completion of construction and final disbursement from the lender, you can pay off the construction loan.

Construction Loan Fund
At the construction loan closing, a construction loan fund will be set up by the lender. In this example 10% of the construction loan fund was disbursed to the builder using the sample construction draw schedule below. This disbursement at closing is paid to cover builder expenses for permitting, architects and other up front costs. Make sure you agree to this amount. If you have given the builder a large down payment, there should not be a disbursement to the builder until the first draw.

Control Builder Disbursements
Don't let the builder get too much money up front! You could end up with too little money in the construction loan at the end. That is why you should religiously adhere to the construction draw schedule. The biggest risk in a construction loan is that there is not enough money in the construction fund to complete the construction of the house. Builders want as much money as they can get up front and may not spend all of it on your house. More info...

Jun 10, 2021
Residential Construction Draw Schedule Form
Free Downloadable Draw Schedule
The construction loan draw schedule shows you how much money will be disbursed with the completion of each phase of the construction process. Here is a free downloadable sample construction draw schedule. More info...

Jun 10, 2021
Construction Loan Draw Schedule
Loan Disbursements From Lenders During Construction
It is always a good idea to get a construction loan from a construction loan lender that will disburse the funds to the builder rather than you as the borrower. This assigns the responsibility for the disbursement of funds to the lender and assures professional inspections as the construction progresses. More info...

Jun 10, 2021
Construction Loan Disbursement Authorization
Residential Construction Loan
This form is used by lenders to have the borrower authorize construction loan disbursements directly to the homebuilder. The form is signed at closing and any initial construction funds are disbursed to the builder at this time.

construction loan application

More info...

Jun 10, 2021
Fixer Upper Houses
Is the Fixer-Upper Life Right for You?
The TV show follows the adventures of hearty souls who purchase property for the sole intent of fixing it up and selling it as soon as possible. Sounds great, but viewers need to be aware that flip this house is easier said than done. First, you need money. Not every bank has the expertise to successfully underwrite fixer upper loans and it generally a better to seek out a lender that has funded many of these loans.
Use this link for a construction loan application for a fixer upper project.
More info...

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