Home How does a construction loan work when you're building a new home?

left grey How does a construction loan work when you're building a new home?

As there is no collateral to back up a construction loan—like there is for a traditional mortgage—you should expect some additional obstacles before you are approved for a loan. Your architectural plans, your builder, and your finances will all be thoroughly inspected. You should also be aware that the disbursement of a construction loan is different from a traditional loan. Construction loans are paid out to the builder in installments—called "draws"—that correspond with important phases of the project, i.e. pouring the foundation, framing, and finishing work.

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