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Weston Dean Homes Blog

What to Know About Construction Loans When You Build on Your Lot

October 8, 2021

Building a custom home on your lot can be an amazing experience that allows you to create your dream home from scratch, but it can also bring up a lot of questions about what it takes to get a construction loan. That’s why Weston Dean Custom Homes has put together this list to help you understand the process.

Construction Loan Vs. Mortgage 

A construction loan and a mortgage are two separate things. Construction loans are short-term loans, typically around 12 months, and they cover all of the costs that it takes to physically build the home. After that, your mortgage loan will take over.

Do you Need a Construction Loan?

When building on your own lot, you will always need to secure a construction loan. You wouldn’t need to get a construction loan if you were building your custom home on a plot of land that is already owned by the builder you’re using. With that option, the price of the construction loan is already included into your overall costs with the company. 

How to Qualify

Similar to most loans, you’ll want your credit to be in good shape before starting this process. The down payment is also always something you’ll need to have, but they can range anywhere from 3.5% up to 20% depending on the type of loan. 

When you work with us and use our Build On Your Lot program, we’ll evaluate your land for free and help you decide where the best site would be to build on your land and what the best build design would be for you. Going in to get qualified for a loan with a clear plan in mind will help the process move faster. Lastly, you’ll also need to have an appraisal performed to see what the value of the home structure will be as well as the value of the land you’re building it on.

What Happens When Construction Gets Delayed

When building a custom home, it’s incredibly important to choose a prominent builder in the industry. One reason for this is that when you get a construction loan, it usually only covers a 12-month building period. If construction gets delayed for any reason, you’ll generally need to get an extension on it and have to pay that fee. When you first speak with your lender, you can discuss what those terms will be before you get deeper into the process. Having a trustworthy builder to work with will help reassure you that they will do everything they can to make sure your home is completed on time.

Closing Costs Explained

We mentioned above that the construction loan and the mortgage loan are two separate things. This is still true, but some lenders allow you to bridge both together. This means that instead of paying closing costs on both the construction loan and the mortgage loan, you would choose a single close construction loan where the construction loan will automatically roll over to the mortgage loan once construction is complete. This option isn’t always available, so ask your lender if this is a possibility for you. If you aren’t able to do a single close construction loan, you will have to be prepared to pay the two separate closing costs.

Weston Dean Custom Homes has been working with homeowners for years, ensuring that they have an amazing experience building their dream home, and we’d love to do the same for you. Take a look at our photo and video gallery to give you some home build ideas, and then contact us online to get started

Weston Dean Custom Homes
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    400 N. Loop 1604 E. Suite 250 | San Antonio, TX 78232
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