Most people who are purchasing a home are either buying a pre-existing home from another buyer or are purchasing it directly from the builder. Because these loans are often very straightforward, the type of mortgage is determined by the people taking out the home loan; the actual house, surprisingly, has little to do with the loan.

But when it comes to new construction, every changes. That’s because there are many more factors coming into play when you pay for something that doesn’t exist yet! Let’s take a look at how these home loans differ.

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The House and the Land

Some people already own the land on which they’d like to build their dream home. Perhaps they inherited it, or maybe they bought that lakefront parcel on a whim with the intention of building on it many years later. Some purchased the property long ago because the location was right but the home was horrid, planning to raze it all along and start from scratch. In these cases the land might have its own loan or even be completely paid for.

But in many cases, loan seekers will be needing to purchase the land and get the fund necessary for the building of the house at the same time. The good news is, that’s what construction loans are all about.

The Contractors

When you get a regular home loan, you purchase from an individual or a couple. But when it comes to a custom home being built, you are dealing with many contractors. How do they get paid? That’s where the draw comes in. A draw is a fund that is created so that contractors can remove funds in order to perform the necessary work to build their particular part of the house, from foundation and framing all the way through trim and sconces.*

Larger Loans

If you’re buying land on which to purchase a home, it very unlikely that you’ll be building a home that looks like all the rest in the neighborhood. More than likely you’ll be building a custom home, and anything that has the word custom in it will almost always cost more. That’s why contruction loans often have higher limits than conventional loans. Construction loans can have up to 95% loan-to-value (LTV) and high balance FNMA loan limits. They are also allowed up to 75-percent LTV-conforming jumbo construction limits up to $1 million.*

If you’re interested in that perfect piece of land and want to build the home of your dreams, don’t let anything get in your way! We can go over all of your loan options and find out which one is for you Find out even more about construction loans right here, then use the contact form on the right to contact your home loan expert at the Frederick Branch of the Goldwater Bank.

Building a home can be stressful, and that’s why you need someone who can help you make the loan as easy as possible so that you can deal with the design. Let’s work together to get you just what you want!


* It’s important to remember that laws are changing all the time. On top of that, rules and offerings at individual banks can also change, so it’s be sure to get the most up-to-date information from a mortgage lender near you.