What is a construction loan?
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A construction loan is usually a short-term loan that provides funds to cover the cost of building or rehabilitating a home.
In general, construction loans have higher interest rates than longer-term mortgage loans used to purchase homes. The money borrowed through a construction loan is typically provided in a series of advances as the construction progresses. Payments sometimes start on a construction loan six to 24 months after the loan is made.
You can pay off the balance in a lump sum or you may be
able to convert the loan to a conventional mortgage loan,
though if your construction loan does not automatically
convert you may have to reapply for a new loan. Your
choices will depend on the lender and your credit history
when you apply, so make sure to compare multiple loans,
terms, and features.