Construction Loans in New Jersey
Build your dream home in Bergen County with construction-to-permanent financing. One-time close convenience, competitive rates.
New Home Construction in Bergen County
Bergen County's thriving new construction market offers opportunities to build custom homes tailored to your exact specifications. With median home prices at $749,714, many buyers are choosing to build new homes on available lots in towns like Mahwah, Wyckoff, Glen Rock, and Alpine. Construction-to-permanent loans simplify financing by combining construction and permanent mortgage into one loan with a single closing.
New Jersey's rigorous building codes ensure quality construction while protecting your investment. Bergen County building departments enforce energy efficiency standards, structural requirements, and safety regulations. Working with experienced NJ-licensed builders and securing proper construction financing sets the foundation for successful home construction projects.
Construction Loan Options
Construction-to-Permanent (One-Time Close)
Single loan, single closing. Finance construction and permanent mortgage together. Most popular option for custom home builds.
- One closing saves fees and time
- Lock rate at start of construction
- Interest-only during construction (6-12 months)
- Automatic conversion to permanent mortgage
- 10-20% down payment typical
Stand-Alone Construction Loan
Short-term construction financing only. Refinance to permanent mortgage after completion. More flexible for experienced builders.
- Construction phase only (6-18 months)
- Interest-only payments during construction
- Separate permanent loan closing required
- Two sets of closing costs
- Rate lock only during construction
One-Time Close Advantages
Construction-to-permanent loans save approximately $3,000-$5,000 in duplicate closing costs (appraisal, title, origination fees) compared to stand-alone construction loans requiring a second closing. You also lock your interest rate at the start, protecting against rate increases during the 6-12 month construction period.
Typical Construction Draw Schedule
Land Purchase & Foundation (20-25%)
Land closing costs, site prep, excavation, foundation poured and cured. Inspector verifies foundation before draw release.
Framing Complete (15-20%)
Walls framed, roof structure complete, windows installed. Building department framing inspection passed.
Dried-In / Weather-Tight (15-20%)
Roof shingles, siding, exterior doors installed. Home protected from weather. Mechanical rough-ins (HVAC, plumbing, electrical) in progress.
Interior Rough-Ins Complete (15-20%)
Plumbing, electrical, HVAC rough-in inspections passed. Insulation installed. Drywall hung and finished.
Finishes Installed (15-20%)
Cabinets, countertops, flooring, trim, fixtures, appliances installed. Interior paint complete. Final mechanical installations.
Final Completion (10-15%)
Certificate of Occupancy (CO) issued by Bergen County building department. Final lender inspection confirms 100% completion. Remaining funds released.
Interest-Only Payments During Construction
You pay interest only on the funds drawn, not the entire loan amount. Example: $500,000 loan at 7.00% with $250,000 drawn = $1,458/month interest-only payment. As draws increase, so does your monthly interest payment. After construction completes and loan converts, you begin making principal + interest payments on a traditional amortization schedule.
New Jersey Builder Requirements
Builder Documentation
- NJ contractor license (verify at nj.gov/dca)
- General liability insurance ($1M+ coverage)
- Workers' compensation insurance
- Builder's risk insurance (construction period)
- References from completed projects
- Financial statements (for new builders)
Construction Plans & Budget
- Architectural plans (approved by building dept)
- Itemized construction budget by phase
- Detailed specifications (materials, finishes)
- Construction timeline (6-12 months typical)
- Building permit (obtained pre-closing)
- Land survey and title work
Construction Loan Process & Timeline
1-2
Pre-Approval & Documentation
Submit loan application, income/asset documentation. Provide construction plans, builder info, and budget. Lender reviews and issues pre-approval letter.
3-5
Appraisal & Underwriting
Appraiser reviews plans and provides "as-completed" appraised value. Underwriter analyzes credit, income, construction feasibility. Builder vetting completed.
6-8
Loan Approval & Closing
Clear underwriting conditions, finalize loan documents, schedule closing. Sign construction loan agreement and note. Funds disbursed to escrow account for construction draws.
1-12
Construction Phase (Interest-Only Payments)
Builder constructs home according to approved plans. Submit draw requests as milestones complete. Third-party inspector verifies work. Pay interest-only on funds drawn.
Certificate of Occupancy & Conversion
Final building department inspections. Bergen County CO issued. Lender final inspection confirms 100% completion. Loan converts to permanent mortgage (principal + interest payments begin).
Frequently Asked Questions
What is a construction-to-permanent loan in New Jersey?
A construction-to-permanent loan (also called a "one-time close" or "single-close" loan) finances both the construction phase and permanent mortgage in one loan with one closing. You lock your interest rate at the start, avoiding a second closing and additional fees. During construction (typically 6-12 months), you pay interest only on funds drawn. Once construction completes, the loan automatically converts to a traditional 30-year or 15-year fixed-rate mortgage without refinancing.
How much down payment do I need for a construction loan in Bergen County?
Construction loans in Bergen County typically require 10-20% down payment of the total project cost (land + construction costs). If you already own the land free and clear, its appraised value may count toward your down payment, potentially reducing cash required. FHA construction loans allow as low as 3.5% down, VA construction loans offer 0% down for eligible veterans. Larger down payments (20%+) eliminate PMI and may secure better interest rates.
What are construction loan draw schedules?
Construction loan draws are scheduled payments to your builder as construction progresses. Typical draw schedule: 1) Foundation completion (20-25%), 2) Framing complete (15-20%), 3) Dried-in/weather-tight (15-20%), 4) Interior rough-ins complete (15-20%), 5) Finishes installed (15-20%), 6) Final completion (10-15%). A third-party inspector verifies each milestone before funds release. You pay interest only on funds drawn, not the entire loan amount, during construction.
What builder requirements apply to NJ construction loans?
New Jersey construction loan builder requirements include: licensed NJ contractor (verify at NJ Division of Consumer Affairs), general liability and workers' compensation insurance, builder's risk insurance during construction, detailed construction plans and specifications approved by local building department, itemized construction budget, builder experience with similar projects, and references from previous clients. Lenders may require additional documentation for new or small builders versus established construction companies.
How long does the construction phase last for NJ construction loans?
Construction phase for New Jersey single-family homes typically lasts 6-12 months depending on size, complexity, weather, and material availability. Bergen County building permits and inspections can add 2-4 weeks. Construction-to-permanent loans typically allow 12-18 month construction periods. You pay interest-only on drawn funds during this phase. If construction extends beyond the agreed timeframe, extensions may be available but could involve fees or rate adjustments.
What are current construction loan rates in Bergen County?
Construction-to-permanent loan rates in Bergen County currently range from 6.75-7.50% (30-year fixed) depending on credit score, down payment, and loan amount. During construction, you pay interest-only on funds drawn at the locked rate. After conversion to permanent mortgage, payments include principal and interest on a standard amortization schedule. Rates are typically 0.25-0.50% higher than standard purchase mortgages due to construction risk. Rate locks often extend 12-18 months to cover construction period.
Ready to Build Your Dream Home in Bergen County?
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