New Construction Loans: 5 Things to Consider


Building a home is an exciting time for buyers – you have the opportunity to design a space of your own from the ground up that’s tailored to your lifestyle. While this is a big step, it’s no surprise that the costs can add up quickly. Some people very well may be able to pay for a new home construction out of pocket, but most do not have that luxury, which is where construction loans come into play.

What are Construction Loans?

A construction loan is a short-term, higher-interest loan that can be used to cover the cost of land, contractor labor, building materials, permits and more. It’s important to note that new construction loans differ from those of a traditional mortgage, which is why we’ve put together these five things to consider before acquiring a construction loan.

Make a Plan

When applying for any kind of loan, it’s important to have all your ducks in a row, which includes having a plan prepared. For a lender to approve the purchase of land for a new home construction, you’ll need a plan so the lender has an idea of what you intend to do with the property and what type of loan you need. If you’re ready to begin building right away, you can apply for the construction loan.

Get Your Credit in Order

Your credit record isn’t the only criteria lenders will look at when approving your construction loan. Therefore you should check your reports for any inaccuracies, as well as pay any existing debts if possible. Construction loans are inherently a bit riskier for lenders compared to home loans, as there is no finished structure that can be used as collateral. Bottom line, try not to make any major changes to your financial status before acquiring a construction loan.

Choose Which Type of Construction Loan You Need

There are a few different types of construction loans available, but there are two that are the most common. A Construction-Only Loan, which is a short-term loan that only covers the cost of construction. A Construction-to-Permanent Loan converts your construction loan into a traditional mortgage once the home is built.

The latter of the two is a more streamlined option that only requires one closing, however it can mean higher interest rates.

Timeline Issues

Because construction loans are short-term loans, it’s important to discuss with your contractor the timeline of building your home and factors that could slow the process down. Right now, there is a shortage of materials such as lumber and appliances that is causing major challenges for construction projects. It’s a good idea to take factors like these into account before applying for your construction loan to avoid any timeline issues.

Finding a Reputable Construction Loan Lender

Because construction loans are a bit more complex than a standard mortgage, and there are different options to choose from, it’s a good idea to find a reputable lender that isn’t new to the construction lending process. Like many big financial decisions, it’s important to shop around and compare construction loan rates, terms, and down payment requirements to ensure you’re getting the best deal suited for your needs.

Here at RCN Capital, we offer an 18 month term program with rates starting at 8.25%.

RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners throughout the country. Whether you are looking to fix & flip properties or hold properties for rental income, RCN has flexible options that are suited to your needs. If you are an investor looking to finance a new construction, RCN Capital has competitive loan options available.Connect with us todayto discuss your next new construction loan deal.