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New Home Construction Loans

Understanding New Home Construction Loans

New home construction loans are specialized short-term loans used to pay for the cost of building a new home. They are a crucial financial tool for prospective homeowners embarking on the journey of constructing their dream home from scratch. These loans cater specifically to the unique demands and timelines of home construction, providing flexibility and resources at crucial stages.


At NuStar Construction, with our vast experience and knowledge, we guide our clients through this intricate process, helping them understand the nuances of such loans and assisting them in making informed decisions.

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Types of New Home Construction Loans

Building a new home is an exciting venture, and understanding the financial aspects, particularly the types of construction loans available, can be crucial. At NuStar Construction, we help our clients understand these options and guide them in making informed decisions that best suit their financial situation and home construction needs.


These loans are specifically designed to finance the construction process, and there are two primary types that clients often consider:

  • Construction-to-Permanent Loans

    Also known as "one-time-close" loans, Construction-to-Permanent loans combine the construction loan and the mortgage into one product. You obtain the funds to build the home and convert the loan to a mortgage once the house is completed. This option provides the convenience of one application and one closing process, saving time and costs. However, the downside is that you are locked into the mortgage rate at the time of approval, which could be higher than market rates upon completion.

  • Stand-alone Construction Loans

    Stand-alone Construction loans, or "two-time-close" loans, involve separate loans for the construction and the mortgage. After construction, the loan is paid off by taking a mortgage. The advantage here is the possibility of shopping for the best mortgage rates after the home is built. However, it involves two approval processes and two closing costs, which may be time-consuming and expensive.

Securing Your Loan:  A Step-by-Step Guide

Obtaining a new home construction loan may seem daunting, but with the right guidance, the process can be navigated smoothly. Here's a step-by-step guide:

  • Finding a Suitable Lender

    The first step involves researching and identifying lenders who offer construction loans. Different lenders have varying terms and conditions, so it's crucial to find one that aligns with your financial needs and goals.

  • Understanding the Loan Terms

    Once you've identified potential lenders, the next step is understanding the loan terms. This includes the interest rate, repayment schedule, and any associated fees. It's essential to fully comprehend these terms before proceeding.

  • Preparing and Submitting Your Application

    After understanding the terms, the next phase involves preparing and submitting your loan application. This usually requires various documents, including your credit report, income proof, and details of the construction project. 

  • Obtaining Loan Approval

    Once your application is submitted, the lender will review it. If it meets their criteria, they will approve the loan. At this stage, it's crucial to stay in touch with the lender and promptly provide any additional information they might need.

guide to construction loans

FAQs

Financing a new home construction can bring up several questions, especially about construction loans. In this FAQ section, we address some of the most common queries, providing detailed insights that can help you navigate this crucial aspect of your home building journey with confidence.

  • What is the difference between a construction loan and a traditional home loan?

    A construction loan is a short-term loan used to finance the cost of building a new home, whereas a traditional home loan or mortgage is used to finance the purchase of an existing home. Construction loans are usually variable-rate loans priced at a spread to the prime rate. They are often set for a 12-month term during which you draw and pay interest on funds as they are disbursed.

  • How does a construction-to-permanent loan work?

    A construction-to-permanent loan combines two loans: a short-term construction loan for the period of building your home, and a long-term mortgage loan that becomes effective once the construction is completed. This means you only have one application and one closing process. The loan converts to a mortgage when the home is completed. The advantage is convenience, but the downside is you may be locked into the mortgage rate at the time of approval.

  • What factors do lenders consider when approving a construction loan?

    Lenders look at several factors when considering a construction loan application. These include your credit score, debt-to-income ratio, and the details of your construction project such as the budget, timeline, and the contractor's credentials. At NuStar Construction, we help our clients prepare for this process, ensuring they have all the necessary documents and meet the lender's criteria to increase the chances of approval.

Our Services

At NuStar Construction, we offer a comprehensive range of services designed to meet your every construction need in Salt Lake City and surrounding areas in Utah. Our team is equipped to handle everything from custom home renovations to commercial contracting. Each service we offer is underpinned by our commitment to quality, customer satisfaction, and meticulous attention to detail. Explore our diverse offerings below to discover how NuStar Construction can transform your vision into reality.

beautiful home with a garden

Craft Your Dream Home Into Existence

Embarking on the journey of building a new home is an exciting endeavor, and securing the right construction loan is a crucial part of that process. At NuStar Construction, we understand the importance of this step, and our dedicated team is here to guide you through every aspect, ensuring a smooth and stress-free experience. Schedule an appointment with us today, and let's begin transforming your dream home into a tangible reality. With NuStar Construction, you're not just constructing a house; you're shaping your future.

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