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Those interested in buying a home know that a mortgage may be involved. But what about if you plan to build your new home? The majority of us can't afford the costs of building a new home outright, and getting a mortgage for a home that doesn't technically exist yet can be a difficult process. This is where a construction loan comes in.
"A construction loan is a short-term loan that you can use to front the cost of building your home," says Michael Litzner, Broker of Century 21 American Homes. "These loans are set for a specific length of time, typically around one year."
When construction on your home is complete, the homeowner then refinances by applying for a new loan to pay off the initial construction loan. "These second loans are called 'end loans,'" Litzner explains.
While construction loans are helpful, they can be difficult to get. Below are some of the strict qualifying requirements that must be met before you can be considered.
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