Compare one-time-close, two-time-close, renovation, ground-up construction, and investor construction financing based on your property and project.
Construction financing is different from a standard mortgage because the property may not yet be complete, and loan funds are generally released in stages as work progresses.
The right structure depends on whether you are building a primary residence, renovating an existing home, developing an investment property, purchasing land, or refinancing into permanent financing after construction.
I can help you compare construction-loan options from multiple lenders based on the borrower, builder, plans, budget, property, and intended use.
Combines the construction financing and permanent mortgage into one transaction, subject to program and lender requirements.
Uses one loan for the construction phase and a separate permanent mortgage after the project is completed.
May finance the purchase or refinance of an existing property together with eligible renovation or improvement costs.
Financing for eligible new residential construction projects beginning with vacant land or a cleared building site.
Business-purpose financing for eligible speculative builds, rental developments, major renovations, and other investor projects.
Financing for eligible multifamily, mixed-use, retail, office, industrial, hospitality, or owner-occupied commercial construction projects.
A one-time-close construction loan—sometimes called a single-close or construction-to-permanent loan—combines the construction phase and permanent mortgage into one closing.
The borrower and project are generally reviewed for the full transaction before construction begins. . After closing, funds are released through a draw process as approved construction milestones are completed. When construction is finished and all final requirements are satisfied, the loan transitions into its permanent phase without requiring a separate mortgage closing.
The lender reviews the borrower, builder, plans, specifications, budget, land, appraisal, and proposed permanent loan.
The construction and permanent financing are established through one closing, subject to the selected program.
Funds are released in stages after inspections or other verification that the applicable work has been completed.
After construction and final lender requirements are completed, the loan transitions into the permanent mortgage phase.
Neither structure is automatically better.
The appropriate choice depends on the project, borrower qualifications, available programs, expected timeline, and need for flexibility.
Some construction and renovation programs may finance improvements to an existing property rather than a completely new build.
Depending on the program, eligible work may include:
Eligible improvements, contractor requirements, contingency reserves, inspections, and completion timelines vary by program.
Ground-up construction financing may be used for an eligible new residential project beginning with vacant land or a cleared building site.
The lender may review the land, plans and specifications, builder, construction contract, detailed budget, appraisal based on completed value, permits, project timeline, and intended occupancy.
Financing may be structured differently for an owner-occupied custom home, an investor-built property, or a larger development project.
Checklist:
Documentation and available loan structures vary based on the property, project, builder, borrower, and lender.
Construction-loan approval generally involves more than qualifying the borrower. The lender may also review the builder, project plans, budget, permits, construction contract, insurance, timeline, and draw process.
Depending on the lender, the builder may need to provide:
Owner-builder projects may have more limited financing options and should be discussed before plans are finalized.
Construction funds are generally not provided to the borrower as one unrestricted lump sum. Instead, money is released through draws as work is completed.
A typical draw process may include:
Interest during construction is commonly based on the amount disbursed, but payment structures vary by lender and program.
Not necessarily. Some transactions may finance the land purchase and construction together, while others use land already owned by the borrower.
Potentially. The treatment of land equity depends on ownership, value, existing liens, acquisition date, and lender guidelines.
Possibly. The builder generally must meet the lender’s approval and documentation requirements.
Owner-builder financing is limited and highly program-specific. Many lenders require an independent licensed builder.
The appraiser may review the plans, specifications, site, budget, and comparable properties to estimate the value subject to completion.
The project budget may include contingency funds, but cost overruns beyond available funds may need to be covered by the borrower. Requirements vary by lender.
Potentially. Investor construction financing is usually structured differently from owner-occupied construction-to-permanent financing.
Timing depends on the borrower, builder approval, plans, appraisal, title, permits, budget, and lender review. Construction loans generally require more project documentation than a standard mortgage.
Watch this overview for a closer look at how one-time-close construction financing may combine the construction and permanent mortgage phases.
Review the property, land, builder, plans, budget, intended occupancy, and construction timeline before choosing a loan structure.
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