What are home construction loans?

Home construction loans are those loans that are issued to people who desire to build their own homes, rather than to purchase one that is already built, or one that is being built by a developer. These loans are short-term loans, usually paid back in full when the construction is complete. During construction, interest-only payments are made. Home construction loans are usually paid off by taking a mortgage loan on the home, which will likely be of a smaller amount than if the homeowner had purchased a comparable home that was already built. The requirements that govern the issuance of home construction loans are not standardized in the way that is typical of a mortgage loan. They are sometimes called story loans, because lenders often want to be familiar with the background story behind the planned construction before the loan is given. The lender will also likely want to know if the land is already owned by the loan applicant, because this could be considered equity for the ...  more