Borrowers will need a construction loan if they plan to purchase a home in a new development or to build a custom home. Construction loans are necessary because of the longer time frame and special requirements of the building process.

There are also many types of construction loans, including the One Time Close Construction Loan. This type of construction loan will finance the construction of a primary or secondary residence and the permanent loan when construction is finished. A One Time Close construction loan requires borrowers to sign only one set of documents and allows the borrower to lock in a rate for the permanent loan at this time. This type construction loan will allow for 12 months of construction time and during the construction period interest is charged only on the funds that have been disbursed.

There a few documents and qualifications that borrowers will need to have when they begin the application process for a construction loan. Some of the qualifications lenders will require are a minimum credit score of 620 and sufficient liquid assets. The borrowers will also need a building department permit and often it is required that construction be completed within 12 months.