Using A Construction Loan To Build A Home

Using A Construction Loan To Build A Home

Do you currently build homes or are you someone interested in having your own home built by someone else? If so, a construction loan is a short term loan that may be used to assist in the building of a real estate project. If you are located near Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee and interested in learning more about financing options to help you build a home, Foundation Mortgage is here to help.

What Is A Construction Loan?


A construction loan, (which is also sometimes called a self build loan), offers a borrower the funding needed to construct a new house. This type of loan covers the project’s building costs, and when that construction is completed, a borrower can either apply for a new mortgage for longer term funding and help pay off the construction loan, or they can refinance the construction loan into a new mortgage. A lender is typically more involved in the loan process with a construction loan than a traditional loan because most construction loans cover the cost of both the cost of the home’s construction as well as the price of the property. It is important to note that you will be required to provide plans for the construction of the home and include a schedule and budget when you apply. Repayment of the loan balance begins when the project is complete, and in some cases, you may only need to pay interest on the construction loan while the home is being built.

What Are The Benefits of a Construction Loan?

Even though construction loans tend to be considered risky and have higher interest rates than most standard loans, they do offer several benefits, including:

  • Flexible terms
  • They can be transferred to a new mortgage
  • They allow the borrower freedom to design their home to fit their preferences
  • Loan payments are not required to be paid back until the home construction has been completed

Construction Loan Requirements

The eligibility requirements for a construction loan are generally stricter than those of a standard loan. It sometimes can be more difficult for a borrower with less-than-ideal credit to secure a construction loan because the home has not yet been built. Because of this, a minimum credit score of 680 is typically required when applying for a construction loan, and most lenders will require a down payment of 20 to 25 percent. You will also need to submit an organized building plan and provide details like who will build the home, the size of the home, and the type of materials used to build it.

If you are interested in building a house and using a construction loan in Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, contact Foundation Mortgage today for a consultation.


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