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If you need financing to build your own home, you can get a short-term construction loan. You'll likely only pay interest on the loan until construction is completed. When building is finished, you can convert or refinance the loan into a regular mortgage.
When you need financing to buy a home, you get a mortgage . But what if you're building your own home? Then you'll need a separate type of loan called a construction loan. What is a construction loan? Construction loans are short-term loans used to fund the building of a home.
While mortgages can come with terms of around 30 years, construction loan terms are usually around a year. These loans come with adjustable rates that are higher than what you'd pay on a regular mortgage. You may be required to make interest-only payments on the loan during the construction period.
Unlike a mortgage, a construction loan only covers costs associated with building the house, including the following: Land Permits Building materials Labor Contingency reserves, or an extra chunk of money in case your costs are higher than what you expected There are a few different types of construction loans, but they generally work in one of two ways: either your construction loan will convert to a mortg.
