The Real Estate Encyclopedia
How Does a Bank Handle the Construction Loan?
Category - Home Ownership Questions - Building Your Home FAQ's
Construction loans differ from mortgages because the lender has to understand and approve the construction plans before it lends money to the borrower.

There are different options regarding the loan when building a home. Some people prefer to obtain a construction-to-Permanent loan. Under this scenario, you may only go through one closing and the lender may allow you to lock in your rate. Be sure you research several banks and obtain estimates on both the construction loan and the final mortgage interest rates.

Under a construction-to-permanent" loan, the construction loan converts into a standard loan by the same lender, once the borrower has a certificate of occupancy. This saves time and money since the borrower only has to fill out one mortgage application and close once (the borrower typically is asked to sign the necessary mortgage documents, in a closing-like setting, once the construction is complete and the occupancy permit has been issued by the county after its final inspection.)
 
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Home Ownership Questions - Building Your Home FAQ's
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