Construction Loans

Construction loans are what we refer to as story loans,  meaning that the lender has to know the “story” behind the planned construction before lending. Because it’s considered a story loan, it won’t be standardized like mortgage loans. There are some common features to a construction loan. Construction loans usually require interest-only payments during construction and become due upon completion (meaning the home owner has a certificate of occupancy). These loans are usually variable-rate priced to the prime rate or other short-term interest rate. You, the contractor and the lender establishes a draw schedule based on stages of construction, and interest is charged on the amount of money disbursed to date.

In the case where the borrower already owns the land, that can be considered as equity on the loan.