Equity

• The amount of equity in the home after it is built usually determines if the homeowner chooses a purchase money mortgage or refinance mortgage. If the home currently has significant amounts of equity, 20 percent or more, then usually the homeowner will choose to refinance mortgage. A refinance does not require the homeowner provide a down payment, it simply uses the equity already built into the home instead.
  
  

Down Payment

• Homeowners who choose to use a purchase money mortgage like to use the Federal Housing Administration (FHA) loan program because of the small down payment requirements. As of 2011, FHA only requires a down payment of 3.5 percent. This is less than the conventional mortgage down payment requirement of 5 percent. Sometimes, homeowners buy things for the house using their own funds instead of using the construction loan. Perhaps, the construction loan only budgeted a certain amount for plumbing fixtures, and the borrower chose to go with a more-expensive plumbing fixture and just pay for the difference out of her own money, the lender may allow them to apply these funds towards the down payment of the home.
  
  

Mortgage Insurance

• FHA requires the homeowner pays mortgage insurance he closes an FHA loan. Additionally, more mortgage insurance is required with each monthly payment. If the homeowner chose to refinance the loan into a conventional loan, and the home has 20 percent equity or more, then the conventional mortgage does not require mortgage insurance. The loan with mortgage insurance can be $100 or more than a loan that does not require mortgage insurance.
  
  

Rehabilitated Homes

• Sometimes homeowners do not build a home from scratch; they tear down an existing home and rebuild it. As long as some portion of the foundation remains, FHA will finance the construction with the FHA 203k program. Homeowners often find a beautiful piece of property in an urban setting and choose to rehabilitate the home instead of buying a new home on the outskirts of the city. This loan program finances the rehabilitation but does not require the homeowner refinance the loan once he completes the rehabilitation on the home.