Real Estate Blog & Resources

Why Home Construction Loan Rates Aren't Published

If you are thinking of building your dream home on the perfect piece of land, like property in one of our communities, there is a good chance that you will need a home construction loan. There are a lot of lenders out there who do home construction loans. So why aren't construction loan rates published just like the rates of other types of loans, like 30 year fixed mortgages? Because home construction loans are different.

Home construction loans are a different type of loan. In fact, home construction loans are what you call "story loans". These are loans that will not be approved by the lender until they "hear your story" about your planned construction of a home. Home construction loans usually require that interest-only payments be made during the construction phase: and they're due upon completion of the home, meaning that the home has its official "certificate of occupancy".

Home construction loans always include variables: so there really is no easy way to determine what the rate will be on a standard basis (like determining the rate of a 30 year fixed mortgage on a home). Construction loans nowadays are going to be variable-rate loans priced by the lender at a spread to the prime rate--or some other short-term interest rate. Once you, the home builder, and the lender agree on a draw schedule, interest will be charged based on the amount of money that the lender has disbursed. Still, another variable that might exist is whether or not you own the land that you're going to build on: if you own the land you are going to build on, then the value of the land might be considered as equity when the lender puts the construction loan together.

There so many variables when it comes to home construction loans, and because of that, no two home construction loans are alike. That's why we aren't going to see home construction loan rates published, or made readily available anytime soon on the internet.