These are sometimes referred to as “single-close” loans. These are construction loans that convert into a mortgage once the home is finished.

This type of construction loan must be paid off or refinanced when the building is complete. These loans can require borrowers to qualify and pay closing costs multiple times during the home-building process.

These are specifically designed to cover the cost of substantial renovations (or the cost of improving a fixer-upper). These loans get folded into the mortgage once the project is complete.

Once you are approved for a construction loan, you are put on what’s called a “draw schedule” based on your construction timeline. Funds will be disbursed directly to your builder to cover the cost of each stage of construction. Before funds are disbursed, your lender will frequently send a representative to monitor the progress of the project and make sure everything’s on schedule.

Typically, construction loan rates rise and fall with the prime lending rate. However, they tend to come with much higher interest rates than mortgages. Since these loans are such a small part of the lending market, most lenders typically don’t even advertise construction loans all that much, which is why shopping around can be time-consuming.

The terms on construction loans also vary quite a bit depending on the type of construction loan you are seeking. Typically, these loans are short-term, only covering the cost of building while the building is actually in progress. During the construction, you are usually only required to make monthly interest payments. When your home is finished, the loans either come due or are rolled into a permanent mortgage, depending on the type of loan.

Using a personal loan for your home can be a good source of financing for a renovation project or a tool to supplement other construction financing. The major benefit to a personal loan is convenience; It can be much faster and easier to secure, and there are fewer hoops to jump through in order to get approved.

They also are likely to cost less in interest than a construction loan, depending on your financial profile. And you can frequently choose a loan with a fixed interest rate, which means your rate won’t change over time. Personal loans also offer potentially better terms. Instead of being required to pay off the loan as soon as the home is finished, you can opt for a longer repayment period.

The drawback? You won’t be able to roll your personal loan into a mortgage once your renovation or building project is finished. And since the loan is disbursed all at once, you will have to parse out the money yourself, instead of depending on the lender to finance the build in stages.

It’s typically harder to get a construction loan than it is to secure a mortgage. Some people even hire construction loan brokers to help facilitate the process. Because your house isn’t built yet, there’s no collateral. And because there’s no collateral, lenders will want to see strong evidence that the home will be completed.

If it’s a renovation, the lender may want to see that the project will add to the value of the home. Check out SoFi’s Home Project Value Estimator to get an idea of how much value you could get in return for each renovation project.

In order to get approved, you’ll have to show an overview of your financial profile, complete with plenty of documentation. They’ll typically want to see a debt-to-income ratio of 45% or lower and a high credit score.

For new construction projects they’ll also want you to be able to make a down payment – sometimes up to 35%.

In addition to your own profile, you will need a detailed plan, budget, and schedule for the construction.  Since the project will depend on the builder’s ability to complete the construction to specifications, your builder’s reputation may be crucial to getting a construction loan approved. Lenders typically need to see a builder’s work history, proof of insurance, blueprints and specifications for the project, a materials list, and your signed construction contract.