Getting a construction loan
When you can’t find the right home to buy, you might consider building a home instead with a construction loan. Construction loans work in a slightly different way than borrowing funds for a traditional mortgage. The initial term on a construction loan generally lasts nine months or less, but could be increased based on your specific project. A Construction loan covers such costs as home construction, including land, contractor labor, building materials, permits and more. With these loans, the contractor receives disbursements as work progresses.
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Construction Loan FAQs
We've covered some common questions you may have about construction loans.
What are the pros and cons of a construction loan?
There are benefits and drawbacks to construction loans. Construction loans tend to have higher closing costs than those associated with a mortgage. Plus, the funds provided by a construction loan are only released in stages as work on your home progresses rather than in a lump sum upfront. However, construction loans often only require interest payments while your home is being built, which can be easier on your budget.
How do I draw money from my construction loan?
WSB will authorize the draw once it receives an inspection report for the work completed. You should inquire about any processes or documentation required to pull money from your construction loan so that you can pay the bills in a timely fashion as they come in. Understanding this process — and ensuring your contractor does, too — can help to avoid delays because of insufficient funds.
What questions should I ask my contractor?
Feeling comfortable with your choice of contractor is important. Consider the following questions when interviewing builders for your project:
- Does the builder have proven experience building the style and quality of home you want?
- Do they meet insurance requirements?
- Are they a reputable, local contractor?
- Can they provide references from past clients, suppliers and local banks?
Is it harder to qualify for a construction loan?
In general, it is not harder to qualify for a construction loan than for a traditional mortgage. We will look at qualifying you for the construction mortgage and for your hypothetical permanent financing. A full review with new credit pulled will occur once the project is complete and you are ready to obtain your permanent financing.
How does a construction loan work when I own the land?
If you already own the land you plan to build on, that might make it easier to qualify for a construction loan. Any existing debt against the land will need to be satisfied as part of the first draw. However, the value of the land can be considered as part of your equity contribution.
When do I start paying on my construction loan?
In most cases, you only need to pay interest payments during the construction process. Once the build is complete, you’ll either have to start making monthly payments on the principal and interest (for a construction-to-permanent loan) or pay off the balance in one lump sum (in a construction-only loan).
For a listing of fees associated with your mortgage, please see our Schedule of Fees (Opens in a new Window)
For more information or to speak with our personal lending staff, stop by our Lending Center, call us at (315) 836-8440, or email PersonalLendingGroup@wsbny.com. We're always happy to help you. WSB Mortgage Loan Originators (Opens in a new Window)