Can I apply for a construction loan, or only to buy a ready home?
You can borrow both to build and to buy a finished home. With a build, the money is released in stages, as the works progress.
In this guide
Building or buying ready-made
A mortgage covers both routes: building a home and buying one that’s finished. What changes is how the money reaches you and how you pay.
How a construction loan works
With a build, the funds are released in tranches as the works progress. There is usually an initial period where you pay interest only on the amount drawn so far. The full sum doesn’t arrive at once, and the monthly cost rises as the build advances.
And with a finished home
Here the loan is released in one go and you start paying the full instalment from the outset.
Flexibility, with more care
A build gives more flexibility, but also more complexity and a real risk of time and cost overruns. It pays to keep a financial buffer throughout the works.
Worked example
On a €200,000 build released in tranches (example figures): in the first months, with only €60,000 drawn, you pay interest on that €60,000, not on the total. As the build advances and capital is released, the payment moves towards that of an ordinary loan.
Sources
Susana Vasconcelos
- Intermediária de crédito autorizada pelo Banco de Portugal n.º 0008496
- Mais de 10 anos na banca