Home Construction Financing

Home Construction Financing: "Home construction lending is a little different than regular mortgage financing.

First, you will be given a construction line that will be used to pay subcontractors and suppliers who perform work and provide supplies.

And then at the end of the construction project, you will use a residential mortgage to pay off the construction line.

Construction Line
You will ask the lender to open a home construction line that will be used to pay subcontractors and suppliers during the construction phase of the project. Generally, these players require payment within 30 to 60 days following work completion.

Once each month, or after each stage of the home construction, your builder will submit a request for funds to pay for subcontracting work and supplies that were used during the construction phase. The lender will release funds after they have verified that the amount requested will be used for the construction phase that has been completed.

Let's run through a simple illustration: Say that your construction project is estimated to cost $100,000. The project will be completed in five phases.

At the end of the first phase, you will request a release of funds ($20,000) from the bank to pay subcontractors and suppliers who completed work during this phase.

Typically, the lender will send out an inspector to verify that the work has been completed. If passed, funds will be released to line the next day.

(This example was a simple illustration on how the construction line may work. The actual procedure may differ by lender.)

Lenders normally have a fixed draw schedule tied to each major phase of the construction. If you request more draws than allowed per project, you may"