What Can Homebuyers Build With a Construction Loan?

Construction Loan

When homebuyers are on the market for a house, they are usually limited to available properties. The market is determined by outside influences. Sometimes inventory is low.

Building a house gives homebuyers the freedom to build it the way they see fit. To do this, homebuyers need a construction loan.

There are a few different types of homes that can be built. In this article, we want to tackle what construction loans are and what buyers can build with a them.

What is a construction loan?

A construction loan is a short-term loan used to finance the cost of building a house or real estate project. The length is reflective of the time needed to build the house, which is usually between six months to a year.

To be qualified for a construction loan, most lenders require a 20-25% down payment. Interest rates are higher because of a term called “prime-plus”. This is because funds are not secured by a completed home and are released as prearranged milestones.

There are three types of houses that can be built.


Manufactured homes are referred to as mobile homes or trailers. They come pre-built to ensure efficiency, affordability, and portability, and are moved to the property based on owner discretion. To ensure portability, they come with a wheeled chassis. They cost less than modular homes and are limited to 2,200 sq ft. Be aware that manufactured homes lose value over time.


Modular homes are not pre-built. They are built in a factory. The individual rooms are assembled and shipped to the property where they are then built on-site. Because of this, every room is customizable. They cost more, but they appreciate in value.


Stick-built homes are built on site. They are built entirely from scratch. They use traditional construction methods and are called stick-built because lumber is used to create and walls and roof. Out of the three houses, stick-built tend to appreciate most in value.

For Starboard Financial, we offer two different loan options.


Construction-only loans funds only the build of the house. It does not roll into the mortgage. Qualifying standards are more difficult, and interest rates are likely to be higher than traditional loans due to the prime-plus interest rate, since there is a higher level of risk.


Construction-to-permanent loans cover not only the construction period, but are then converted to the traditional mortgage. Homebuyers make interest only payments. Since this type of loan rolls into a conventional mortgage, buyers will only pay one set of closing costs, and qualify for only one loan.

As well as two different financing options for each of these.

Conventional Construction Loans:

  • Credit score of 680
  • Debt-to-income ratio of 45% or lower
  • Down payment between 20-25%
  • Detailed plan of construction project, budget, etc.
  • Builder for the project

FHA Construction Loans:

  • Credit score of 640 or higher (500 with 10% down payment)
  • Debt-to-income ratio below 43%
  • Down payment of at least 3.5% (10% if below 579)
  • Cannot exceed FHA loan limits

Starboard Financial is a full-service mortgage lender that works with homebuyers through every stage of the homebuying experience. We simplify the contstruction process with a streamlined digital portal. If you have any questions, feel free to reach out or check out our construction page

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Contact Us today if you would like to discuss the purchase process further or if you have any inquiries about our product offerings. If you do not have any questions and are ready to submit your information for a loan decision, please Apply Now.