A construction loan allows someone to pay for the costs to build a new home. There are a variety of construction loans available, including spec, rehab, owner builder, and custom.

Usually you will only pay interest on the money that has been disbursed to date. Often this is an interest only payment. This allows you to keep your payments low during construction. You may also have the option of deferring the payments until after construction is finished. At that point you can refinance, and roll your payments into the final loan.

Construction loans are usually at higher interest rates, and they will usually require a much larger cash reserve(on hand cash in checking, savings, retirement) in the borrowers deposit accounts.

Not long after the completion of your newly constructed home many people will refinance out of their construction loan in order to lower the interest rate and monthly mortgage payment on their home loan. A construction loan does not usually have the most favorable terms and this is why many homeowners will refinance their construction loan to a different mortgage loan program.

If the home you are building will be a 2nd home, you may be able place a lein against the equity in your existing home if you do not want to put any cash down.

A construction-permanent loan is a construction loan that automatically converts into a permanent loan after the construction period is over. The benefit to this type of loan is that you don't need to refinance after the construction is finished. This also saves you fom having to pay closing costs again.

If you already own the land that you plan to build on, it can be used to decrease your loan to value (LTV). In a sense it can act as a down payment for your construction loan. You will need to know the approximate value of the land to know if the lower LTV is enough for your new construction loan.

A construction loan will need an end-loan which turns into a mortgage.

Lenders are now offering One Time Close Construction loans which allow original construction loans to be converted to a conventional home loan after the construction is complete without having to qualify for a new mortgage.

Home construction loans are designed to help individuals build or remodel their homes. The loan is built around an appraisal, land value, scope of work (new construction vs. renovating), a construction budget, the borrower's credit and assets.

There are some construction programs that allow you to cross collateralize your current home against the home you are building. You will need sufficient equity in your current property to make this effective.

While most construction loans offer interest only payment during the course of construction, borrowers have many options when it comes to permanent financing once the property is complete. Popular options for permanent financing include cash flow arm loans which allow you to defer interest, interest only mortgages, and fully amortized principal & interest mortgages with fixed rates and adjustable rates available. Construction to permanent mortgage financing is available up to multi million dollar loan amounts.

A home construction loan is not disbursed all at once but gradually as the construction progresses. Construction loans are usually at a higher rate than an existing home loan.