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The Two Main Types of Construction Loans

Scott Sohr

The president of STS Ventures, Scott Sohr supervises the conception and development of start-ups within industries such as real estate, health care, and financial technology. Dedicated to sharing his entrepreneurial knowledge with others, Scott Sohr also serves as the chairman of Built Technologies, a company focused on construction lending.

Most construction loans come in two types: construction-to-permanent and stand-alone construction. Construction-to-permanent loans cover the cost of a home’s construction. When buyers move in, the loan is converted to a permanent mortgage that can be repaid as a 15- or 30-year loan.
Stand-alone construction loans cover the construction but do not offer any long-term mortgage solutions. Since these loans require smaller down payments, they are ideal for buyers who already own a house and do not have enough money for a down payment on a new house until the old house has sold.
However, buyers cannot lock in a mortgage rate with stand-alone construction loans. Buyers must pay both the construction loan and long-term mortgage fees once the loan term is up.

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