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StartingOver10
Posts: 4,534
Registered: ‎03-06-2010
Re: Pre Construction and Mortgage Loan

It really depends upon the type of builder you are buying from - there are two types of loans:

 

1) End loan. This is the type where you close after the house is built and it works just as stated above - you get your approval, the builder builds the house and you close at the end when construction is completed. Many of the larger builders with extensive construction credit lines have their buyers obtain end loans.

 

2) Or, a construction-perm loan. These types of loans are typically used for smaller builders or custom home type builders. You, the buyer, would get a contruction to permanent type loan from the bank and the bank would send out their own inspector to approve (or not) the draw requested by the builder. This means you actually purchase the land first and the loan is provided in draws to the builder as the home is completed. You pay interest on the amount drawn throughout the loan. Once the property is completed and a certificate of occupancy is issued, then the loan is converted to a "permanent loan".  The conversion is a seemless one, but you do have a second "closing".