New Construction Loan

A New Construction Loan is a short-term loan used to finance the building of a new residential or commercial property. These loans cover the cost of land, labor, materials, and permits needed during construction. Once construction is complete, borrowers can either refinance into a long-term mortgage or pay off the loan.

New construction loans are ideal for homeowners, real estate investors, and businesses looking to build a new property instead of buying an existing one.

Who Can Benefit from a New Construction Loan?

✅ For-Profit Businesses – Small and large businesses in rural areas.
✅ Nonprofits & Cooperatives – Including rural electric, water, and healthcare cooperatives.
✅ Tribal Entities – Federally recognized tribal organizations.
✅ Public Entities – Towns, communities, and economic development groups.
✅ Agribusinesses & Farmers – If the project involves value-added processing (e.g., food manufacturing).

Key Features of a New Construction Loan

✔ Short-Term Loan (Typically 6-24 Months) – Covers construction until completion.
✔ Interest-Only Payments During Construction – Reduces monthly costs while building.
✔ Covers Construction Costs – Pays for land, materials, labor, and permits.
✔ Option to Convert to Permanent Mortgage – Some loans convert into a traditional 15-30 year mortgage.
✔ Flexible Loan Amounts – Typically based on the projected value of the completed home.

Types of New Construction Loans

🏡 1. Construction-to-Permanent Loan

• Starts as a short-term construction loan and automatically converts into a traditional mortgage after completion.
• Ideal for homebuyers building a primary residence.

🏗 2. Standalone Construction Loan

• Covers only the construction phase; the borrower must refinance into a separate mortgage after completion.
• Ideal for builders or developers planning to sell the property.

💰 3. Owner-Builder Loan

• For borrowers who act as their own contractor instead of hiring a builder.
• Requires experience in home construction.

🏢 4. Commercial Construction Loan

• Used for building office spaces, retail centers, industrial buildings, or multi-family housing.
• Offered to businesses and developers.

Typical Requirements for a New Construction Loan

📌 Good Credit Score – Typically 680+ for the best terms.
📌 Detailed Construction Plan – A blueprint, budget, and contractor agreement are required.
📌 Down Payment – Usually 20-30% (some programs offer lower down payments).
📌 Proof of Income & Financial Stability – Borrowers must show they can repay the loan.
📌 Licensed Builder Requirement – Lenders usually require a licensed and insured contractor.
📌 Property Appraisal – Lenders assess the future value of the home/building.