After a person selects a house plan, gets a bid, and selects a builder to build their home, they will then need to complete the loan application. The people will need to have the appropriate paperwork and they will need to meet again with their lender. After all the paperwork is completed, the lender will then process the loan application. When the process is complete, the lender will close the home building loan. The construction can only begin on the house once the loan has been closed.

During construction

During the construction of a home, the contractor-who generally hires sub-contractors to do specific work, will make draws from the home building loan. These draws allow the sub-contractors to be paid. The borrower, the lender, and the contractor will make a schedule for when the draws are to be made. When the bank issues checks to the people who need to be paid, the borrower will then need to begin to make interest payments on the money that has been taken from the loan account. Each month the interest payments will get more and more expensive.

After construction

Once the new house is built, a person will need to change their home building loan to a permanent mortgage loan. From the beginning of the process, many people choose to have a construction-to-permanent loan program to make the process easier once the house is completed. This can be a good option because there is only one set of closing costs when a person uses a construction-to-permanent loan.

There are two types of mortgage loans, a fixed rate home loan and an adjustable rate mortgage loan. With each of these types of loans a person will no longer be paying only interest when they may their monthly payments, they will also be paying down the principal.

Variables with home building loans

Home building loans have a few variables that a person should be aware of. One such variable is how much of the construction project the lender is willing to give funding for. For example, if the borrow already owns the land where they want to build their house then they can use their land as equity for their home building loan.

Regular mortgage loans are partly based on how much the building/house is worth, a home building loan needs to be based on the construction plan since there is not a house built yet. So each home building loan is going to be different. They cannot be standardized.