Construction loan

[nwa-non]

Can someone please explain how construction loan for a new build work, in a real, practical sense?

I have a local builder from whom I'll be buying the plot of land and the building. All plans have been drawn up by the builder. All permits have been pulled. They are selling the whole package for, let's say, $500k. They are doing this for 20 such units all next to each other.

I've read up on it and I (think?) understand the process. But I can't figure out the steps ....

For example, if I'm an existing home owner and I want to sell my home and buy another (re-sale) property, these are the high level steps I'd follow:
- I get pre-approved for a loan
- Identify the home that I'll buy. Put in offer. Offer is accepted.
- Lock in the mortgage rate
- Put my current home on sale
- Use the sale proceeds from the existing home, minus current outstanding mortgage, as a down payment on the new home. Say $200k down payment
- Close on the new home with a conventional 30-yr mortgage. The $200k would be 40% down.

[uniwelder]

I don't know much about construction loans, but wanted to nit-pick a detail you wrote in the regular home buying process

.....
- Put my current home on sale
- Use the sale proceeds from the existing home, minus current outstanding mortgage, as a down payment on the new home. Say $200k down payment
- Close on the new home with a conventional 30-yr mortgage. The $200k would be 40% down.

What you wrote assumes you sell your current home before the closing of the new home.  I know lots of home sales have contingencies like this, but in a tight market, I don't know how common it ends up being.  From what I hear, your offer is likely to be declined in favor of someone whose offer has no such contingency.  They'll have the money to pay immediately for the down payment or even pay for the home entirely in cash.

[affordablehousing]

I don't understand, why isn't the builder completing the project then selling the completed house to you? Are you developing the land yourself? If what you are buying is a vacant lot with some plans and permits, you'd apply for a construction loan, which would be for a portion of the total cost, and the bank would verify the construction progress and release payments to the contractor as it progresses, until the house is complete, at which point you would apply for a permanent mortgage to take out the construction loan.

[Metalcat]

I don't understand, why isn't the builder completing the project then selling the completed house to you? Are you developing the land yourself? If what you are buying is a vacant lot with some plans and permits, you'd apply for a construction loan, which would be for a portion of the total cost, and the bank would verify the construction progress and release payments to the contractor as it progresses, until the house is complete, at which point you would apply for a permanent mortgage to take out the construction loan.

Yeah, I'm super confused about this question too.

OP are you asking about a new housing development or building a custom home on a lot you own?

The first doesn't require a construction loan, just a deposit.