Home construction loans are designed to allow a borrower to build their own residence from the ground up. Mortgage companies offer two types of financing. Lenders may draw up an initial home construction loan at the beginning of the building process and then make a permanent one at completion. The borrower may have to re-qualify for the permanent loan and obtain an additional appraisal on the property. The interest rate could change if it isn't locked in or guaranteed on the initial agreement for the loan.
The second way that a lender makes home construction loans is by making a combination loan that becomes permanent upon completion of building. With this type of financing there is just one set of closing costs, no re-qualifying and up to 12 months to complete building. Some lenders will do either type of financing.
