Construction Loan Types

With the inventory of quality existing homes being limited, many would be homeowners are turning to new construction as an answer.

An up tick in new construction while favorable for builders can pose challenges for clients and Realtor’s who work to help find financing for their clients. What many do not realize is the market for construction lending is far different from a typical new home purchase.  As a matter of fact, many lenders do not offer a construction loan product.

As a bank, we have money to lend for new construction and offer one of the best construction lending products on the market.  Construction loans typically come in two different options with some variations:

Option 1 – Construction Permanent Loan (aka One Note Construction Loan)
With this loan, the client closes on one loan that provides construction as well as permanent financing.  This eliminates the need to pay two sets of closing cost and in cases where a client takes a fixed rate loan they have the ability to protect themselves from higher interest rates (Note few lenders offer a fixed rate construction loan – We do).  This option is typically the best for most clients, especially when rates are moving higher.

Option 2 – Construction Only Loan (aka Two Note Construction Loan)
With this loan, the client closes on a loan that is only good for the construction period of the home (typically a 12 month term).  With this product a client has two sets of closing cost.  One for the construction loan and a second for the permanent mortgage.  In addition, in most cases the client does not have a guarantee on what their rate will be for their permanent mortgage.  This option is the most favorable for the bank and rarely benefits the client as they have increased cost and interest rate risk.

If you need help with vacant land and new construction financing, please don’t hesitate to contact us.  With low down payment options (as little as 5% down for qualified borrowers), we have one of the most competitive construction products in the country.