You’ve purchased or inherited land and are now set to build your dream home. Should be pretty simple, right? You would certainly think so.

In reality, construction loans are harder to come by than traditional mortgages. Not all lenders offer construction loans and those that do want to know every detail of your planned construction. These loans are short-term, interest-only, and are designed to revert to a traditional mortgage upon construction completion. They come in two types: the construction-to-permanent loan and the construction-only loan.

The construction-to-permanent loan, or all-in-one loan, automatically changes to a standard mortgage once the home is built. The advantage to this type is that it only requires one application and one closing.

The construction-only loan must be paid off or replaced with a conventional mortgage at the end of construction. The advantage here is that a borrower can shop around and select from thousands of conventional lenders rather than being restricted to construction-only lenders.

Regardless of the type of construction loan, the interest rate is generally fixed for the construction period. They also don’t pay out all at once. Lenders will figure up a schedule of your construction stages and hand out the funds for each stage. Most lenders also insist that you hire a professional contractor.

The best way to stick to your budget is to make a plan and live by it. It’s easy to get carried away in splurging on fancy bathroom fixtures or surface upgrades, but you may run out of money before the construction is completed. Practice a little self-control and you’ll have the home of your dreams in no time!