A construction loan, also known as a building loan, is a type of loan used to finance the cost of constructing a new home. In contrast to a home loan, which is used to purchase a pre-built home, a construction loan is paid out in stages as each stage of the construction process is completed.
This means that the borrower receives funds only as they are required to pay for materials and labour, rather than the entire loan amount upfront.
Banks, credit unions, and other financial institutions typically provide construction loans. A good credit score and a solid financial history are usually required to qualify for a construction loan.
You may also be required to provide detailed plans and specifications for the home you are constructing, as well as a realistic budget and construction timeline.
Working with a reputable builder or contractor who has experience building homes and a track record of completing projects on time and within budget is a good idea.