Building your own home or undertaking a major remodeling project is the perfect opportunity to create space suited to your needs, but the financing is often complex. Beyond finding the right builder, you’ll also likely need a construction loan to fund your project. Below is an overview of what you need to know about these specialized lending programs if you plan on building or rehabilitating your home.

A Guide to Construction Loans

They’re Short-Term Loans

Unlike mortgages, which have terms of 15, 20, or 30 years, construction loans have much shorter time frames, usually just long enough to finish building your home. There are two primary kinds of loans: construction-only loans, which must be paid in full as soon as construction ends, and construction-to-permanent loans, which can be rolled into a mortgage loan. 

The Application Process Is Detailed

As part of the construction loan application process, you’ll have to submit paperwork explaining each phase of your project. Your application package should include a summary of the builder’s credentials and references, completed blueprints and specifications, an itemized budget and payment schedule, and a signed contract. Thanks to the volume of detailed paperwork, expect the process to last longer than your standard one- to two-week mortgage approval. If the loan is approved, your lender will disburse the loan funds directly to the builder as each part is completed, usually on a monthly basis. Your lender may require that an inspector confirm past work was done before releasing new funds. 

You’ll Need to Put Money Down

Most lenders won’t let you borrow the entirety of what you need to cover project costs, so be ready to put a certain percentage – usually between 20 to 25% – of equity down. Depending on the specifications of your loan, you may only need to make interest-only payments while construction is underway. While you’ll need to provide extremely specific plans up front, terms for construction loans are often flexible, meaning you can adjust them to account for changes. 

If you’re planning on building a new home or doing a complete overhaul of an existing property, Armstrong County Building & Loan Association in Ford City, PA, will work to ensure you get a financing plan tailored to your needs. Their loan experts have been serving the community for over 90 years, earning a reputation for honesty, reliability, and friendly service. Visit their website to learn more about their construction loans and other products. Call (724) 763-7137 to make an appointment.