A Beginners Guide to Construction Loans 

A Beginners Guide to Construction Loans 

Home construction is a big market with construction loans provided by U.S. banks totaling over $385 billion in 2020.  

What are Construction Loans? 

Construction loans are used to build or completely renovate a house. They can be used to buy the land, draft construction plans, pay for permitting, cover the costs of materials and labor, and access contingency reserves. They are considered short-term loans. Typically 12 to 18 months duration during which the structure must be completed, and a certificate of occupancy issued. Construction loans differ from mortgage loans which are used to purchase a completed house. 

How Do Construction Loans Work? 

Construction loans are based on the completion of a project. Therefore, a lender will require detailed construction plans, a project timeline, and a reliable budget. Once the loan is approved, the lender will create a draft schedule that matches the construction project’s major project milestones. Inspections will be made during construction to release additional draws against the loan. Interest payments will be made during construction. 

How to Get a Construction Loan 

Steps for getting construction loans: 

• First, find a builder that is licensed and has the required expertise to complete the project.  

• Gather the documents that a lender will require. Including the construction plan, timetable, and construction budget. Further, get references for the builder and proof of their operating credentials.  

• Get homeowner’s insurance that includes builder’s risk coverage.  

• Find a good construction loan lender and get preapproved for a loan. Find an experienced lender that isn’t new to the lending process for construction loans. Lenders can include banks, credit unions, online lenders, and financing specialists.   

Requirements for Construction Loan Approval 

Approval for construction loans includes a good credit score and ensure you have adequate income. Be prepared to provide a down payment of 20-25 percent of the cost of construction. 

Seek Expert Financing Assistance 

Contact Quick Capital Funds for expert financing assistance. We offer a range of options to meet your needs and help you reach your goals. 


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