May 23, 2022

How to Unlock Your Dream House With a Home Construction Loan


Are you overwhelmed by bidding wars, overpriced homes, and the housing market frenzy? Building your dream home might be possible thanks to a home construction loan. From how they work to the construction loan requirements, we’ve rounded up everything you need to know about construction financing.

You might consider getting a loan to make those dreams become a reality, but how do you go about this type of home loan? If you want to learn more information on how to unlock your dream house with a home construction loan, we’ve got the answers to all your burning questions. Let’s get building.

What is a Home Construction Loan?

While different companies may use different names to call it, a construction loan is essentially a loan used to build something. This loan allows you to build what you want, and it differs from a traditional mortgage.

A construction loan is a short-term loan in which you use the money to build or renovate a house. After the home is built properly, a certificate of occupancy is issued. You may use this loan to buy land, pay contractors, and build a home.

A construction-only loan is one where you only use the loan to finish building a house. This differs from a traditional mortgage where the loan is used to finance a home.

How Do Construction Loans Work?

With a traditional home loan, your home is used as collateral. This means if you fail to make payments, your lender can take back your home to recoup some money. This reduces the risk for lenders giving buyers a lower interest rate.

With a construction loan, you may see higher interest rates and even variable interest rates that go up or down. This is because lenders are taking on more risk. You may start a construction project, default on your loan, and the lender is left short.

A construction loan is also on a shorter timetable than a traditional mortgage. You’ll need to provide the bank with detailed plans, a realistic budget, as well as a timetable for completion. Once your loan is approved, money is paid in a draw or directly to contractors to pay for the construction.

With a construction loan, progress payments are often made. This means contractors are paid as the home progresses. This is typically done when major projects are completed such as a foundation getting poured or the roof getting installed.

What Can You Afford?

When you apply for a construction loan, there are a number of factors taken into account. First, a lender will look at the income you have coming in. Next, they'll look at your existing expenses and debts. They also pull your credit history, much like with a traditional mortgage.

From there, lenders go over different options and loan terms. Some buyers are looking to roll a construction loan right into a mortgage loan. For others, they want to use a loan to build the home and then have a separate mortgage after the home is built.

With a construction loan, you’ll often only pay interest during the construction period. Interest rates and the amount you qualify for will vary depending on the type of home you’re building.

You’ll also need to factor in the cost of land, the cost of construction, and what you can afford. Take a look at your budget before applying and come up with a number that works for you. From there, a lender will work to get you a comfortable payment that still allows you to build the house you’re envisioning.

The Different Types of Construction Loans

There are several different types of construction loans. From construction-to-permanent loans to construction-only loans, we’ve rounded up a little bit about each type of loan. Let’s jump in and see which construction loan is right for you.

Construction-to-Permanent Loan

Consider the construction-to-permanent loan, in which home buyers borrow money to build a house, move in, and then convert their construction loan to a permanent mortgage. The advantage of a construction-to-permanent loan is that you only have to pay closing costs once. There’s no need to apply for a mortgage after the home is built.

When the construction-to-permanent phase is over around 12 months, for example, the lender creates a traditional mortgage. This phase lasts up to 15 or 30 years, during which you make payments that cover both interest and the principal. Your mortgage is then a traditional mortgage with installment payments.

As of now, you may choose between a fixed-rate or adjustable-rate mortgage, and the FHA construction-to-permanent loan, which can be a good option for some borrowers. The VA construction loan is available to eligible veterans.

This option is great for people looking to roll the construction and mortgage phase into one. You apply once, get the construction loan, and then it’s automatically turned into a mortgage. You don’t have to worry about applying again or setting up your mortgage payments.

Construction-Only Loans

A construction-only loan gives you the money necessary to finish building your home. You’re responsible for paying the loan in full once it reaches maturity. This is often in a year, but it could be longer depending on the project. After this, you will need to secure a permeant mortgage.

The money is paid to the contractors during the construction phase. You’ll pay interest on the money taken out or drawn. Inspections may also be done to see how the construction is progressing and to issue your payments.

Construction-only loans may cost more if you still need a permanent mortgage. You’re essentially completing two loan transactions with additional fees for each. Closing fees can add up when you multiply them by two.

Renovation Loans

Home renovation loans are perfect for when you want to renovate an existing home. You don’t have to build a home and you can fix the one you already own. Depending on the amount of money you’re looking to spend, the project costs will vary.

A cash-out refinance option lets you take out a new mortgage. Your loan is higher than the current one and the overage is given to you in a lump sum. You can then use this lump sum to pay contractors and renovate your home.

If you’re already in a home and you love the location but not the home itself, this is a great option. You get to stay in the area and the home you already own but you get to fix what’s been bothering you.

Building or Renovating a Home vs. Buying New Construction

If you’re contemplating buying a fixer-upper, building an entirely new home, or buying new construction that’s already built, there are a number of things to consider. First, when you buy a new construction home that’s already built, there could be some drawbacks.

First, you don’t get to choose your own land, location, and where the house is built. Second, you didn’t get to design the home to suit you and your lifestyle. A new construction home may have already been completed.

Maybe you won’t love the layout, or you would have chosen different finishes. When you build your own home or you renovate an existing home, you’re in the driver’s seat.

You get to pick out as much detail as you’d like. You can work with your own contractors, professional designers, and more to fully customize your dream home. The possibilities are almost endless.

Don’t Let a Lack of Funds Stop You From Building Your Dream Home in Your Dream Location

When you renovate a home or buy an existing home, you can’t move it from its location. The home sits on the land it came on. If you’re looking to choose your own land, street, and location, this is your chance.

When you build your own home with a construction loan, you get to choose where it is. Not only do you get to choose the location, but you also get to turn it into the home of your dreams.

Choose your dream location to start building. Choose by the school district, proximity to work, the amount of land, and more. Whatever matters most about the location is possible when you get to choose the land you build on.

There's no need to hunt around for the perfect home. You can choose your favorite area, find a lot or a home that needs work and start building your own. It could take you months or even years to find a home on the market that may never exist. 

With a Renovation Loan, You Can Finally Build the House You’ve Always Wanted

If you’re currently living in a house you don’t love, you likely daydream about the changes you’d like to make. Whether it’s a bad layout in the kitchen or the flooring that doesn’t match, now is the time to make the changes.

With a construction or renovation loan, you can finally make your house the home you’ve always wanted. From the floor plan to the size and the fixtures, you get to make the changes you’ve always wanted to.

A renovation loan, you can add on more square footage, remove walls, add bedrooms, change the exterior, and more. Make the changes you’ve wanted to make for years. A renovation loan lets you stay in your home while making it your own.

There’s no need to uproot your family, move your belongings, or change your routine. You get to keep your family in your home while making it the home of your dreams. A construction or renovation loan also lets you keep cash in your pocket for emergencies.

Boost the Value of Your Home With a Home Construction Loan

If you buy vacant land or a fixer-upper, the home you add will increase the lot in value. As you build your home, you’re also building equity. Your new build adds instant value.

The new dream house you’ve created will increase your net worth as well. Your land and home are worth more. The deeper discount you get on the vacant land or the tear-down, the more value you’ll gain.

If you’re looking to build or tear down an existing home in an expensive market, this is a great way to save money. New construction homes that are already built are in low supply. In the current housing market, bidding wars and competition for homes are the new normal.

Buying a tear-down or vacant land means you get to live in the area you want. Instead of searching for the perfect home, you get to build it in the spot you choose. You choose the size, the layout, the floor plan, and every detail in between.

Apply for Your Home Construction Loan Today

If you’ve been searching for your dream home for months with no luck, building your own could be the answer you’ve been looking for. It’s almost impossible to find the perfect home. A home construction loan lets you build it instead.

A home construction loan lets you finally build the home you’ve been dreaming of. If you’re ready to apply for a home construction loan today, fill out the contact form here. We have a variety of loan options to help you and your family build the home of your dreams. 

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4.1
Based on 42 Reviews
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Emily Riesco
June 1, 2022

Brandon, Paulette, and Christie were all amazing with helping me buy my first home! Everything was done promptly and I was able to close quickly. It was overall a wonderful experience and highly recommend them! Thank you Southern Home Loans!!

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sandi breaze
April 11, 2022
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Deanna Batt
February 16, 2022

Brandon, Kristie & Ann at Southern Home Loans are the most professional and experienced team. Their organization in describing which documents or paperwork needed on our end was extremely thorough where we were able to understand what was needed to get everything submitted quickly. In turn, we were able to close early. Brandon was our Angel in getting this property. We had a seller on New Year’s Day require an approval letter. We were so stressed sharing to each other how will we get this on a holiday. We reached out to Brandon and he not only responded quickly to us, but had the letter in our hands to satisfy the seller’s realtor. In our past experiences with mortgage lenders, some good some not so, all fall short of the experience we had with Southern Home Loans. We had a partner with us that walked with us all the way and made this the best buying experience we have ever had. Our own realtor shared not only did they see their commitment to the client but they will be using them with future clients as well. We can only say from the bottom of our heart, thank you, and know others will benefit from this amazing group.Deanna Batt and Paul V. Poliseo

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Luke
February 1, 2022

Could not express enough how amazing this team is. Dave Engel was amazing and got stuff done very quick. The entire team was responsive and was happy to answer any questions I had at any time. Initially I tried using Wells Fargo and regretted it immediately. Yes their fees were lower but who cares if you can’t anything done. You truly get what you pay for. There is no question as to who you should use during this process! Thank you team!!

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Kenneth Daniels
January 6, 2022

I would like to thank Brandon and his staff at Southern Home Loans for making the mortgage process smooth and efficient. From application to funding in about 3 weeks! God Bless

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Nicole Moneymaker
August 24, 2021

Big big big shout out to Brandon and Paulett for making my fiancé‘s first experience buying a house amazing we appreciate everything that you have done for us and being so patient thank you so very much from the bottom of our heart we are so excited to have our new home❤️

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Robin Losapio
May 31, 2021

We were very pleased with southern home loans, we worked with Brandon, he was very helpful with purchasing our new home. We also worked with Paulette, who was excellent at communication and knowledge. We highly recommend them and we would definitely use them again

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Giz S.
January 3, 2021

Simply the besttttttttttttttt. Thanks so much to Brandon & Paulette that made it possible for us to purchase our first home. We appreciate all their help and great communication throughout the entire process.

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Aiza Velazquez
November 5, 2020

Brandon was awesome highly recommended him made it possible and more for home thanks Brandon and team

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Sarah Taylor
July 30, 2020

Southern Home Loans is the greatest group of people to work with specifically Brandon and Paulette. They made the loan process very easy and they were beyond helpful answered anything I asked and made sure I had everything I needed to close on the house I had my heart set on.5 star review all the way.

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justin turner
June 24, 2020

We refinanced to take advantage of low rates and Brandon’s team had us at “clear to close” in 30 days! I didn’t know it was possible. Perfect team to work with!

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Seven T
May 14, 2020

We definitely recommend this company, they made this possible! Our first house on a pandemic situation, with a great interest rate. They never said is not possible! They always looked for a way to get it done and the right way. Thanks Brandon, and Paulette for all the hard work. God bless!

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Virginia Ortiz
April 14, 2020

Brandon could not have made the process any easier! We closed two weeks early and found the home of our dreams! I am so thankful Ashley Yates with Magnolia Homestead Realty sent us to you! Highly recommended!!

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Shelly Schenck
April 9, 2020

Brandon and his team at southern home loans went absolutely above and beyond for my family we truly are so blessed with all the work Brandon did for us, there are not enough thank you's we could say. We probably drove him crazy with this whole process but he never once lost his patience with us! I would HIGHLY recommend Brandon and his team they make dreams come true! Thank you for all your hard work you did for us and making sure my family got into our home!

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Karla Franco
March 8, 2020

When I first decided to buy a house, I was extremely nervous, didnt know what to expect. But between my realtor and Southern Home Loans the experience was very smooth. There did everything possible to make sure every step was firm and looked for our best interest. They always kept in touch through phone calls and emails, always keeping us updated with every status of every step. I was always inform, therefore I fully trust them and recommend them to anybody who wants an enjoyable purchase, from the beginning until you can finally walk through the doors of your dream home. Thank You!!

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Sarah Haydu
January 29, 2020

Brandon and his team are exceptional! I wouldn’t trust anyone else to do our mortgage. They were extremely responsive and kept us updated throughout the entire process, regardless of the time or distance. Great experience and highly recommend SHL!!

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Todd Yocum
January 29, 2020

Great company. Brandon and his team will make sure to give your loan top priority and service the whole way.

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Rich M.
January 10, 2020

Brandon and his team did a great job guiding me through the home buying process. Professional, prompt, thorough and knowledgeable is how I would describe everyone at SHL. Brandon bent over backwards to get my deal done and I will be a customer for life.

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Danny Parsons
December 17, 2019

I used SHL for both of my homes and everything went smoothly. Even though I was out of town for the most recent process, they were able to get me closed before the projected closing date.

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Jon McGraw
December 16, 2019

Brandon and his team go above and beyond to get their deals to the closing table. He has closed my loan on my personal residence and I could not be happier w his team’s service. Great people and great product!!!

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Larry Smith
November 11, 2019

Big call out to Southern Home Loans, especially Brandon C.!! These guys helped us when no one else could. Highly recommended!!!

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Josh Nevelson
October 30, 2019

Knowledgeable about the industry having worked with Brandon a number of times now. Would not hesitate to work with.

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Scott Kaser
August 5, 2019

I had a great experience. Southern Home Loans had good communication throughout the process and were able to get an FHA loan on a foreclosure.

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Hope B.
May 21, 2019

As first time home buyers we had no idea what we were doing. Brandon answered all of our questions, gave good advice and helped us through the entire process. It was fast and painless. If you're serious about buying a house and in the position to do so, they will make it happen.

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Preston Garrison
November 11, 2018

I can’t say enough good things about Southern Home Loans! As first time home buyers, we had absolutely no idea where to start with this process. Brandon and his team were always there whenever we had questions, and they made our first time home buying experience go so smoothly and efficiently. We highly recommend them and we are so appreciative for all of their help.

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Joshua Stein
May 26, 2018

Very pleased with the results with this company. First time buying a home and Brandon and his team helped explain every step. Definitely recommend anyone looking to buy a house to work with this company. Everyone is pleasant and patient even with our work schedule. Thanks for making our experience so wonderful!

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Bill Agar
May 25, 2018

Brandon was very professional and efficient. He answered all my questions in a timely manner, and I truthfully felt he had my best interests in mind. I would recommend him to all of family and friends.

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Anthony Alfarone
August 8, 2017
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David Glorius
June 29, 2017

When we were looking for a house, we finally found one that met our needs...Quiet neighborhood, slow street, 5 bedrooms and a small piece of property. We finally found our dream home. We went to an old friend for a mortgage that drug us through the mud and back, and after 3 agonizing weeks of "just hold on" we couldn't get financing. Went to our bank (1 point higher interest) and they drug us through the mud and back for 2 weeks and nada...Our realtor suggested Brandon Crysler at Southern Home Loans. She called him on a Saturday, we had out paperwork over that afternoon...few more pieces of paperwork on Monday and by the end of the week, we had financing for $190,000. We closed 2 weeks later. We are so happy with My. Crysler. He came through in a pinch when two others failed! 5 *

Just closed on our house last week Annie , Brandon, and Paulette were awesome! Any calls and questions were answered promptly and professionally. I would strongly recommend.

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cecelia NARDI
May 21, 2017

This was our first time buying a house in another state. Annie, Brandon and Paulette were very helpful, and returned our phone calls promptly. We were living at a RV park with very limited computer ability. We were able to go to the office to bring over any necessary documents. Not being familiar with e-signatures Brandon helped guide us through it. Would recommend them for a loan company.

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Emily Wojcik
May 12, 2017

This was my first home and my lender was G.A. Douglas. He kept me updated on everything and was there to answer any questions that I had. lord knows I called or texted him a thousand times during the processes.He was very patient and understanding. I 100% recommend G.A. Douglas from Southern Home loans!

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Stephanie Edwards
December 5, 2016
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