Home Construction Loans

Prepare for building on your land with a residential construction loan

While some people search for their dream houses among a pool of houses already built, others prefer to customize their dream homes by building on a specific plot of land. Once you've purchased that land and begun designing your dream home, you'll need to determine financing for the construction, find the right builder and understand zoning restrictions. One option may be to consider a home construction loan or similar product designed to help you with home construction finance, rather than a new home purchase where you would apply for a mortgage.

Check your zoning restrictions

Before you can get home construction financing in place, you first need to learn building restrictions and local zoning regulations. In most areas, those local ordinances strictly control where, what and how you can build. Generally speaking, they are in place to ensure you to blend in with the look of surrounding structures. Go to your local courthouse or town office and look at a zoning map to determine the zoning classification of where you want to build. Classifications include rural, residential, agricultural, business, commercial and industrial. After you know you're zoning classification, ask for a copy of zoning regulations.

Once you've established that you have the legal right to build your project under applicable zoning rules, you'll need to give some thought to the narrower zoning provisions that govern allowable design and how they'll affect your plans. Potential zoning restrictions or guidelines may include:

  • Height and overall size of buildings
  • Building proximity to other structures
  • Area of the lot that will contain structures
  • Distance from the road or a water source
  • Landscaping
  • Fences
  • Pools

Home construction finance options

As these plans begin taking tangible form, you'll need to get serious about how you'll secure financing for your project. Some lenders offer a home construction loan that acts as a line of credit to cover expenses during the building and then becomes a permanent mortgage when you receive a certificate of occupancy.

Most home construction loans are made for a limited duration, often no more than a year. Lenders may approve disbursal of the money in phases, which is designed to ensure that distinct portions of the project are completed before any additional funds are released for later phases. You may be able to go this route if you have equity built up in your land already.

As an alternative to a residential construction loan, some lenders will approve you for a permanent mortgage and provide your builder with assurance that you will be starting mortgage payments when you are handed the keys to move into the home. Builders generally have lenders they work with to finance the cost of materials and labor during the build and will be paid by your lender when the work is complete. You will then start making payments on a permanent mortgage. Since you already own the land, this may be considered a 'down payment' on your mortgage when you apply, which may help you obtain a larger loan.

Finding a builder

Once you know your zoning options and have lined up home construction financing, you're ready to search for the right general contractor or builder to help you execute your plans. He may or may not bring an architect to the table as well. Ask around for referrals to builders or contractors with a strong track record of building quality homes on time and within budget.

  • Be clear ahead of time on what your builder will provide you. This is usually something a lender will require as well for greater assurance in your home construction finance.
  • When will the home be completed?
  • Will the builder help with such crucial details as serving as a liaison to utilities?
  • If not, who is responsible for seeing that your house connects to the municipal sewer systems, the electric grid and other utilities?

Choose a permanent mortgage or a home construction loan with help from Citizens Bank

Let a Citizens Bank home loan originator help you decide if a permanent mortgage solution or a residential construction loan is right for you when building your new house. Call us at 1-888-514-2300 to learn more about home construction finance for your situation. If you're ready to start building, you can start the mortgage application process online today.