A construction loan is a short-term loan that covers the cost of building a new home from the ground up. Unlike traditional mortgages, construction loans release funds in stages—called “draws”—as work progresses. Once construction is complete, the loan is either paid off or converted into a permanent mortgage. If you’re building your dream home near Lake Marion, understanding how construction loans work is the first step to breaking ground.
What Is a Construction Loan?
A construction loan is a specialized loan used to finance the building of a new home or significant renovation project. These loans are short-term, usually lasting 6 to 18 months, and are designed to fund the construction process in phases.
Unlike traditional mortgages, you don’t receive the entire loan amount upfront. Instead, the lender disburses funds gradually as each stage of construction is completed.
Key Features:
- Short-term (typically 12 months or less)
- Funds are distributed in “draws” tied to project milestones
- Typically interest-only payments during construction
- May require conversion into a permanent mortgage when the home is finished
This financing option is ideal for buyers wanting to build a custom home near Lake Marion—especially those seeking waterfront lots, new developments, or vacation homes tailored to their needs.
Two Main Types of Construction Loans
There are two main types of construction loans. Choosing the right one depends on your goals and financial situation.
1. Construction-Only Loan
This is a short-term loan that only covers the construction phase. Once the build is complete, you’ll need to apply for a separate mortgage to pay off the loan.
- Two closings required (loan + permanent mortgage)
- May offer more lender flexibility
- Higher total closing costs due to two transactions
2. Construction-to-Permanent Loan
This loan automatically converts to a traditional mortgage once construction is complete. It’s often called a “one-time close” loan.
- Only one closing
- Locks in your interest rate early
- Simplifies paperwork and reduces fees
Many Lake Marion-area buyers choose the construction-to-permanent option to avoid the hassle of refinancing after building is complete.
How Does the Construction Loan Process Work?
Here’s a simplified breakdown of the construction loan process:
Step 1: Loan Preapproval
Just like with a traditional mortgage, you’ll need to get preapproved based on your:
- Credit score (usually 680+ preferred)
- Income and employment
- Down payment ability
- Debt-to-income ratio
Step 2: Choose a Licensed Builder
Most lenders will only approve loans for homes built by licensed, insured contractors. You’ll need to provide:
- Builder contract
- Project timeline
- Budget (cost breakdown)
Carolina Properties at Lake Marion can recommend reputable local builders who meet lender criteria.
Step 3: Submit Construction Plans
You’ll need to submit:
- Full building plans
- Site details
- Appraisal of the “to-be-built” home
- Insurance documentation
Step 4: Loan Approval and Closing
Once approved, the loan is closed and the first draw is released to start construction.
Step 5: Draw Schedule and Inspections
As the build progresses, your lender releases funds in phases, typically tied to milestones like:
- Site preparation
- Foundation
- Framing
- Roofing
- Final finishes
Before each draw, a lender-ordered inspection confirms the work is complete.
Step 6: Convert to Permanent Mortgage
If you’re using a construction-to-permanent loan, it automatically transitions into your regular mortgage once the home is complete.
Construction Loan Requirements and Costs
Construction loans are higher risk for lenders, so requirements are usually stricter than traditional mortgages.
Basic Requirements:
- Credit Score: 680+ preferred (some allow 620+)
- Down Payment: 10% to 20% typically required
- Reliable Income: Proof of employment or self-employment
- Licensed Builder Contract: Required in almost every case
Common Costs:
- Loan origination fees
- Closing costs
- Interest-only payments during construction
- Appraisal and inspection fees
- Potential rate locks or float-down options
Pro tip: Construction loans typically have higher interest rates than traditional mortgages due to the risk and short-term nature. Once the home is finished and you move into a fixed mortgage, you may be able to lower your rate.
What Can Be Financed with a Construction Loan?
Construction loans can be used to cover a wide range of expenses, including:
✅ Covered Costs:
- Land purchase (if not already owned)
- Site prep (clearing, grading)
- Foundation work
- Framing, roofing, and siding
- Interior finishes
- Plumbing, HVAC, and electrical
- Driveways, landscaping, and decks
- Permits and inspection fees
❌ Not Covered:
- Furnishings
- Detached structures not included in plans
- Pools (may require a separate loan)
- Personal labor (if DIY)
If you already own the land, its value may be used as equity in place of a down payment—a major benefit for landowners around Lake Marion.
Building in Lake Marion—What You Need to Know
The Lake Marion area offers an ideal setting for custom home builds thanks to:
- Available lots and acreage
- Peaceful waterfront communities
- Growing interest in vacation homes and short-term rentals
- Close proximity to Charleston, Columbia, and I-95
Popular towns for new construction near Lake Marion include:
- Santee
- Summerton
- Eutawville
- Elloree
- Vance
Whether you’re building your forever home or a vacation retreat, Carolina Properties can help you find the perfect lot and navigate the entire construction financing journey.
FAQ: Construction Loans
Q: Can I use a construction loan to buy land and build?
A: Yes. Many construction loans allow you to finance both land and building costs together.
Q: How much do I need for a down payment?
A: Most lenders require 10–20% down, but some may accept less if you own the land or have equity.
Q: Do I make full mortgage payments during construction?
A: No. During construction, most loans require interest-only payments on the amount disbursed so far.
Q: Can I build the home myself?
A: Rarely. Most lenders require a licensed general contractor to manage the build.
Q: What happens if construction costs go over budget?
A: You may need to cover the difference out-of-pocket or request a loan modification. Having a buffer in your loan estimate helps prevent surprises.
Final Thoughts: Build Your Dream Home with Confidence
A construction loan can turn your vision of the perfect home into a reality—especially in scenic areas like Lake Marion, where custom builds allow you to enjoy the natural beauty, privacy, and waterfront living you won’t find in traditional subdivisions.
At Carolina Properties at Lake Marion, we specialize in helping clients:
- Find buildable land
- Connect with trusted lenders and builders
Understand every step of the construction loan process - Transition smoothly from blueprint to dream home
Ready to build your future by the lake? Contact Carolina Properties today to explore lots, get connected with construction loan experts, and take the first step toward your custom-built home in South Carolina.