If you have a vacant lot and wants to build your own house, a construction loan is the best type of loan.

In Construction Loan, the loanable amount is equivalent to the raw materials and manpower costs needed to build a house. The fund is released in installments based on the level of completion progress.

The first thing to prioritize when availing a Construction Loan is to have the lot title in the borrower's name. That's because the land is essentially the collateral. Otherwise, the banks will not process it.

Next, the principal borrower should have a Bill of Materials and Floor Plan ready from a certified architect or engineer. Since the loanable amount is based on the construction cost estimates, it is essential to have this done.

As an affiliate, it's good for you to know that construction loan may be one of the most difficult to get an approval because banks generally consider this loan as high-risk.

If you have potential referrals for a construction loan, make sure to inform them that the loan funds are released in tranches, so it means they have to bear the initial costs in order to begin the construction. The good news is, if they already own the land, they can use the proceeds from the vacant lot for their initial funds.

Hope that helps you understand what a construction loan is.

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