Construction Loans in Maryland

A construction loan can provide financing for the cost of building a new home, with funds generally released in stages as construction progresses. Depending on the program, construction financing may be structured as a construction-to-permanent loan that transitions into long-term mortgage financing when the home is completed.

Redwood Mortgage Services helps borrowers explore construction loan options for custom homes and residential construction projects throughout Maryland. Based in Annapolis, we can help you understand construction financing options and the loan process as you plan your project with a builder.

How Construction Loans Work in Maryland

A construction loan provides financing for building a new home, with funds typically released in stages as construction progresses rather than all at once at closing.

The process differs from financing an existing home because the lender must evaluate not only the borrower, but also the proposed construction project. This may include reviewing the building plans, specifications, construction budget, builder information and an appraisal based on the anticipated value of the completed home.

During construction, funds are generally released through a series of draws as specified stages of work are completed. Inspections may be required before additional funds are released.

Depending on the loan program, borrowers may use construction-to-permanent financing, which combines construction financing with the permanent mortgage, or a stand-alone construction loan that requires separate permanent financing after the home is completed.

Redwood Mortgage Services can help Maryland borrowers understand available construction financing options and determine which structure may be appropriate for their project.

Construction-to-Permanent Loans in Maryland

A construction-to-permanent loan, sometimes called a construction-to-perm loan or C-to-P loan, combines financing for the construction of a new home with the long-term mortgage financing used after the home is completed.

During the construction phase, loan funds are typically released in a series of draws as work on the home progresses. These draws may correspond with milestones such as completing the foundation, framing, mechanical systems, drywall, and other stages of construction. Inspections are generally used to confirm that the required work has been completed before additional funds are released.

Once construction is finished and the home meets the lender's completion requirements, the construction financing transitions to permanent mortgage financing according to the terms of the loan program.

Why Consider a Construction-to-Permanent Loan?

For Maryland borrowers planning to build a custom home, construction-to-permanent financing combines the construction phase and permanent mortgage financing within one loan structure.

Depending on the particular loan program, potential advantages may include:

• Financing the construction and permanent mortgage through a coordinated process
• Fewer financing steps than obtaining a separate construction loan followed by a new mortgage
• The ability to finance an eligible homesite and construction costs
• The potential to use equity in land you already own toward the transaction
• A defined process for construction draws and inspections

Loan structure, down payment or equity requirements, closing costs, interest-rate terms, builder requirements, and other conditions vary by program and borrower qualifications.

Already Own Your Land?

If you already own the property where you plan to build, the equity in your land may be considered as part of the construction financing, depending on the loan program and the property's value.

This can be important to discuss with a mortgage professional during the planning process, particularly when evaluating your construction contract, plans, specifications and budget.

Planning to Build in Maryland?

Construction financing involves more than simply qualifying for a traditional mortgage. The lender may also need to review the builder, construction contract, plans and specifications, project budget, appraisal, and proposed timeline.

Redwood Mortgage Services can help you explore construction-to-permanent loan options and understand the financing process before construction begins.