This projection is usually made on the basis of a report from an appraiser, who evaluates the potential value of the home. This evaluation is inferred from the type of house that is being planned, the quality of materials being used, the cost of labor and the cost of land. After this report is concluded, the borrower’s income is also reviewed to help determine the loan amount and the interest rate.

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The amount of these loans is determined by the sum of soft costs and hard costs. Soft costs are fees incurred by nonmaterial expenses, such as various insurances, appraisals, taxes, permits, etc. Hard costs are made up of physical expenses, such as land and construction materials. Fees that surpass the expected total for the construction can also be placed in this category. The sum of soft costs and hard costs make up the total of the loan. A cushion of about ten percent is generally is added to this amount as a precaution in case construction costs exceed the original projections.

Home construction does not have to be a frustrating experience, at least as far funding is concerned. There are many lenders who will finance the entire cost of materials, labor and property. One-time-close loans and construction-to-permanent loans have made construction loans simpler than ever.