Purchase And Construction Loan

A purchase and construction loan is a special type of mortgage that allows borrowers to finance both the cost of building a home and financing the mortgage at the same time. This type of loan is popular among home builders and investors who are interested in both new construction and renovations.

There are a few different types of purchase and construction loans. These include stand-alone construction loans, renovation loans and a construction-to-permanent loan, also known as CP loan.

Generally, lenders will need to see detailed plans for your project. These should include a builder's contract, construction timeline, designs and a realistic budget. The lender will also want to approve of the company that will be building your home, and they may need to check your debt-to-income ratio and credit score before approving your loan.

The interest rate on construction loans is usually higher than on traditional mortgages. This is largely due to the increased risk that a bank takes when lending money for new construction projects.

What Does a Construction Loan Cover?

A construction loan typically covers the cost of land, fees, permits, labor and materials for a new home or other real estate project. It can be used for a primary or second home, and down payments begin at 20 percent.

When it comes time to pay off your construction loan, you'll typically refinance it into a traditional home mortgage. You can also choose to repay the construction loan with a lump sum or in installments.