A Comprehensive Guide to Construction Loan Refinancing
What Is Construction Loan Refinancing?
Get a permanent mortgage for completed construction
Construction loans are short-term and to cover building costs during the construction phase only. Refinancing replaces this temporary program with a long-term mortgage once the home is finished.
Choose from different programs
Refinancing offers the flexibility to choose a new program that fits your current situation, like fixed or adjustable-rate refinancing, and government-backed programs like FHA, VA, and USDA refinancing.
Access home equityÂ
If the value of your property has increased after construction, refinancing can let you access the equity you've accrued. These funds can be used for landscaping, furniture, or unexpected project costs.
What Can Construction Loan Refinancing Be Used For?
Transitioning to a long-term mortgage
Once construction is complete, refinancing allows borrowers to switch to a permanent mortgage. Depending on the program, you may get a fixed interest rate, low or no down payment, and other benefits.
Consolidating debt
Borrowers with multiple loans tied to a construction project can refinance to consolidate them into one loan. This simplifies repayment and can save money on interest over time.
Accessing additional funds
If construction costs exceed the initial budget, refinancing can provide additional funds to cover unexpected expenses or changes to the original project.
Pros
- Replaces a completed construction loan
- Provides an opportunity to secure better terms
- May allow borrowers to roll in additional costs not part of the original loan
- May allow borrowers to pull cash out with a new appraisal
Cons
- Typically involves closing costs
- Qualification requirements may be stricter than the original loan
- Requires a new professional property appraisal
Talk to our mortgage experts today about finding the right loan for you.
Construction Loan Refinancing Programs
- For eligible veterans, service members, or surviving spouses
- Refinances a VA construction loan into a long-term mortgage
- Offers competitive interest rates
- Requires no private mortgage insurance (PMI)Â
- Designed for properties in eligible rural and suburban areas
- Refinances a USDA construction loan into a permanent USDA mortgage
- Offers no down payment optionsÂ
- Jumbo Construction Loan Refinancing
- For high-value properties exceeding conforming loan limits
- Refinances a jumbo construction loan into a permanent mortgage
- Typically requires excellent credit and a strong financial profileÂ
How Do I Know If Construction Loan Refinancing Is Right for Me?Â
The building stage of your home is finished
Refinancing is the next step once construction on your home is complete and you're ready to move in. This replaces milestone-based financing with a traditional mortgage.
You have more expenses than you thought
If your project has exceeded the initial construction budget, or you want to fund additional upgrades, refinancing can give you access to more money to complete your home.
Your property value has increased substantially since the start of the project
If the value of your home has risen due to construction progress or market conditions, refinancing can help you take advantage of the increased equity.
When Is the Best Time to Refinance a Construction Loan?
The best time to refinance a construction loan is when your home is built. If you don’t already have a construction-to-permanent mortgage that converts automatically upon project completion, you’ll need to find a new mortgage program that can take the place of your existing construction loan.
You can also refinance your construction loan to another construction loan if you’ve run into cost issues and have realized the project will be more expensive than you initially anticipated.
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FAQ
What happens if my property isn’t fully completed when my construction loan is ready to be refinanced?
Do I need a new appraisal when refinancing my construction loan?
Does refinancing require detailed documentation of construction costs?
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