Are Appliances Included in a Construction Loan?

A construction loan funds new home construction or significant renovations, disbursing funds in stages as building progresses. Unlike a traditional mortgage, a common question is whether appliances are included. This primarily depends on if the items are considered permanent fixtures.

Understanding What a Construction Loan Covers

Construction loans primarily cover costs for the physical structure and permanent improvements, such as land acquisition, building materials, labor, and permits. Lenders assess the completed home’s value as collateral, distinguishing between permanently affixed items and personal property.

Built-in appliances like wall ovens, cooktops, dishwashers, range hoods, and built-in microwaves are generally considered “fixtures.” These are permanently attached, often requiring specialized wiring or plumbing. As they contribute to the home’s appraised value and cannot be easily removed without causing damage, they are typically eligible for inclusion in a construction loan.

Conversely, freestanding appliances like refrigerators, washing machines, dryers, and portable microwaves are usually classified as “personal property.” These items are movable and not permanently attached to the home’s structure. Lenders generally do not include personal property in a construction loan because it does not directly contribute to the real estate’s appraised value, which serves as their collateral. While some specific lender policies or builder packages might allow for certain freestanding items to be included if they are integral to the home’s function and part of the overall appraised value, this is less common and varies by financial institution.

Incorporating Appliances into Your Construction Budget

After understanding eligible appliances, meticulous planning and budgeting are necessary. Select appliances early in the design phase to accurately estimate costs and integrate them into the construction budget. Obtaining detailed quotes or estimates for all desired built-in appliances is a crucial step.

These detailed appliance costs are then incorporated into the comprehensive construction budget that is submitted to the lender for loan approval. The lender’s appraisal process will consider the value of these included appliances as part of the overall projected property value upon completion. This “as-completed” appraisal helps the lender determine the maximum loan amount they are willing to provide, ensuring the property’s value supports the financing. Therefore, thorough documentation and clear communication with your builder and lender regarding appliance selections are essential before the loan is finalized.

The Disbursement Process for Appliances

Funds from a construction loan are not disbursed in a single lump sum but are released in stages, commonly known as “draws,” as construction milestones are met. This process allows the lender to monitor progress and ensure funds are used for their intended purpose. For appliances, funds are typically released during the later stages of construction, often when the home is nearing completion and the appliances are ready for purchase and installation.

To receive a draw for appliances, specific documentation is required. This documentation often includes invoices from suppliers for the appliances purchased, proof of their delivery, and sometimes proof of installation. Before releasing funds, the lender or their representative will typically conduct an inspection to verify that the specified construction phase, including appliance installation, has been completed satisfactorily according to the approved plans and budget. This phased disbursement helps manage financial risk for both the borrower and the lender throughout the construction period.