Call us for your next real estate closing 770-924-1400  •  400 Creekstone Ridge, Woodstock, GA 30188

With the housing market so stressed and new builds finally starting to pick up again, a lot of people are bypassing the current options on the market and building their new house instead of buying one. Depending on your area building a house is just as sound of an investment as buying one of the pre-existing ones. But traditionally, you can’t use a mortgage loan to build a house from scratch. But that doesn’t mean you can’t get a loan.

What’s a “house building” loan actually called?

When you’re getting a loan to build a house, you’re going after a Construction Loan. Construction loans are higher interest, shorter term, and often paid out in installments that coincide with milestones associated with building a house. Once the house is fully built the loan is transformed into a more traditional mortgage.

What does a Construction Loan cover?

Not every construction loan is the same, but most will cover the various elements that commonly occur when you’re building a house. The property itself, permits, labor and building costs are all typically included in a construction loan. Some can even include a contingency amount specifically for upgrades that get added on in the middle of a project–opting for granite rather than laminate countertops even if laminate was what was in the original plan, etc. They’re often paid out in installments that coincide with benchmarks that are associated with the building progress, and usually interest is only charged on what has been paid out so far. 

Different kinds of Construction Loans

Not all construction loans are designed the same, and some have a variety of different pros and cons attached. There are FHA and VA loans for building a home, but also Construction-to-permanent loans, which turn themselves into a mortgage when the house is built. Construction-to-permanent loans also have the benefit of only having to go through the closing process once, potentially saving you thousands of dollars as well. 

A Construction-Only loan is a much shorter term loan that covers the same things but is expected to be paid back in full within a year or less of it being paid out. You can turn this into a mortgage once the home is built but it requires another application and closing process. 

Renovation loans are available as well, but aren’t always the best option. If you’re looking to spend less than $20k on the renovation it’s wise to consider a personal loan, or even looking at a cash-out refinancing option to cover the costs with a better outcome for your situation. If you’re looking to spend more than $25K or you haven’t built quite enough equity into your home yet it’s a way to go. 

Ready to close? 

Whether you’re buying a house already built or getting a loan to build a house when you’re ready to close come see us! At Frank B. Pallotta Law we have more than 20 years of experience helping our Georgia clients navigate the closing process. We understand that each client is different, each situation is different, and that you need our full attention. When the time comes to close, put your faith in us.