Maryland Construction Loans for New Homes and Additions

If you are looking to build a new home in Maryland, then chances are you are going to need a construction loan. Here you will find information about the basics of construction lending, how to get a construction loan, and the Maryland construction loan lender that has helped Finish Werks clients with forward thinking solutions, and results.

What is a Construction Loan?

The difference between a construction loan and a mortgage-style loan is primarily the lifetime of the loan. A construction loan is a type of short-term loan that lasts only a few months up to a few years (for very elaborate site built projects). Mortgage-style loans tend to be over much longer periods of time. Construction loans are, as their name would imply, meant to last only through the construction period for the new home you are financing. Construction loans typically require interest-only payments during construction and become due upon completion. Completion for homeowners means that the house has its certificate of occupancy (aka U&O).

As described by a construction loan information site:

“These programs combine the construction and permanent financing of your project. You qualify for the loan once, lock in the permanent rate, sign one set of loan documents and have up to 12 months to complete your residential construction project!

Residential Construction to Permanent Loans

You can finance the lesser of 85% of the cost of construction, or up to the following loan to values, depending on the income documentation that you will supply.

 Documented Income

Stated Income

No Income Docs

90% To $   400,000

80% To $   400,000

65% To $   400,000

80% To $   650,000

75% To $   650,000

60% To $   650,000

70% To $3,000,000

65% To $3,000,000

50% To $1,000,000

Cost of construction is defined as follows:
  • Hard cost of construction
  • Soft cost of construction
  • Closing costs
  • Contingency and interest reserve

   Example of a Loan Amount Calculation

 Land Purchase Price


 Or Value if Owned Over a yr.

 Soft Cost of Construction

$  25,000

 Plans Permits etc.

 Hard Cost of Construction


 Cost To Build

 Closing Costs

$  13,750

 Fees, Title, Escrow, etc.

 Contingency Reserve

$  11,250

 5% of Hard Costs

 Interest Reserve

$  10,000

 Interest On Amount Drawn

 Total Project Cost



 Future Value


 Based On Appraisal

Calculation of Maxium Loan Amount for the Project

The following is an example of how to calculate the loan amount, for a fully document loan, providing the borrower is also qualified.

Step 1:   $385,000 x 85% = $327,250
Step 2:   $500,000 x 80% = $400,000  Refer To The Table.
Step 3:   $327,000 Is The Lesser of steps 1 and 2
Step 4:   $385,000 - $327,250 = $57,750  Min. Down Payment.

How Do I Get a Construction Loan?

Construction loans are often referred to as "story loans" because their terms and availability are subject to the story you tell your potential lender. The lender has to know the story behind the planned construction project before they are willing to loan you money. If a lender believes that the building project will be valued high enough by an Appraiser to merit the contract cost, or that the applicant has the means to effectively pay back the construction loan, the terms will vary accordingly.

For those with weak credit or little collateral, it's extremely difficult to secure a construction loan. What's more, the lender will scrutinize the viability of the applicant's contractor or home builder, and approval will also hinge on the outcome of this scrutiny.

How Do You Get Approved?

Avoid acting as your own General Contractor, be forthright with your application information, and communicate often with your custom home builder to ensure your custom home or addition is designed and specified clearly enough to earn the approval of your lender.

If you are having trouble finding a Maryland construction loan lender, talk to your builder (hint: us!). We’ve built homes in the past, and those homes required construction loans, so we know which lenders you actually have a shot with.

Maryland Mortgage Lenders

We’ve said it before, but just as a reminder: Finish Werks will work with just about all lenders that will work with us. However, we recommend contacting Mark Wharton at Presidential Bank Mortgage on our resources page. Tom's goal is "to help you cut through the clutter and noise in the mortgage marketplace, so you can quickly and efficiently find a loan that meets your objectives, and keeps construction adequately funded."

More Info

For more information on custom home loans or construction lending, check out the article below or give us a call:

Finish Werks Office: (410) 514-6222 or email

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Addl. Resource- Maryland Construction Loans