Question : How do building loans work?
I know I could go to a bank.. But I’m more just looking to gain some knowledge.. So I’d appreciate any help! :-)

Can you get a building loan of like.. 5 years, Build the house/work full time.. And THEN start paying it off? Like a School loan?

Or does it not work that way?

I’m very interested! THanks!
building loans

Best answer:

Answer by Steve D
The way they usually work (a standard construction loan) is that you take out the construction loan and the bank deposits the money in an account. As you build the house, the contractor gets what is called a “draw” which is really just a withdrawal used to buy the materials, pay subcontractors and workers. When the house is finished, you go back to the bank and they convert the construction loan into a traditional mortgage secured by the house. At that point, you start paying off the mortgage.

Also, the construction loan has interest of course which gets rolled into the mortgage. There are no 5-year deferred loans.