Construction Loan Q&A

Construction Loan Q&A

I am thinking of building my new home, where do I start?
If you are thinking of building your home, the first step should be consulting a mortgage banker. SFB mortgage bankers give an in-depth overview of the construction process and will give insight into what will be needed for a construction loan.

After discussing financial history, goals, and obstacles that could arise, you will be ready to meet with your builder and start planning your dream home.

What does a construction loan entail?
A construction loan is a short-term loan that covers the cost to build your home. These costs can include the purchase of land, permits and fees, materials and labor, and other hard costs. 

How do you choose a builder?
You will want to choose a reputable builder for your home to make sure everything comes out to your liking and in a timely matter. Tips for making sure your builder is the best choice for you include, looking at reviews and references, touring model homes, checking the builder's licensing and insurance, and asking about warranties.

Once you have a contract signed with your builder, it is time to submit a full application. Your banker will order an appraisal and collect all important information to start processing your loan request. 

How long is a construction loan?
SFB's construction loan term is 12 months.

What is the typical down payment?
You will need a 10% down payment for the construction.

Can you use the equity on your lot as a down payment?
Yes, you may be able to use some of the equity from your lot as a down payment. Please discuss this option with your mortgage banker.

How does payment work during the construction?
During the construction phase, you are billed monthly for the interest that has accrued on your loan. You are only billed on the total disbursed funds, not the entire loan amount.

Payment to builders, often called draws, is paid to your builder through a title company. During the draw period, your SFB banker will work closely with you, your builder, and the title company to ensure all draws are paid timely and your budget stays on track.

What happens once the construction is complete?
Once the construction is complete, you will pay off your existing construction loan. Typically, this is accomplished with the end financing loan. Once you are moved into your new home, you and your SFB banker will determine permanent financing goals. When your permanent financing has been approved, you will schedule a final loan closing.

Once the final loan closing is scheduled, the construction loan process is over and all that is left to do is to enjoy your dream home.

Contact an SFB mortgage banker to get started building your dream home by calling 888-254-0615 or visiting Home Loans | Security Financial Bank (