To help you figure out how much to borrow, you’ll first want to talk with your builder to decide how much your new home construction will cost.

Like any mortgage, you want to ensure your monthly payments fit within your budget, and during construction, you may have added costs. Construction loans only cover the cost of land and construction, not living expenses while your house is being built.

Many people, for example, plan to use the proceeds from the sale of their current home to help finance the construction of their new home. This allows them to make a larger down payment and reduce the size of their loan.

But, keep in mind, if you’ve sold your home, you may need to factor in the cost of rent while your new home is being built. Renting during home construction will add to your living expenses, so budget accordingly to afford rent, construction costs and other living expenses.