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Yes, it is possible to replace an existing construction loan with a new construction loan. I cannot tell from your question if this is for the purchase and then completion of a home, or if this is a refinance transaction.
I am going to assume you are buying a home that is in the construction phase and will need to obtain financing to complete the home. Let’s say that you have a half competed home that can be purchased for $300,000 as is, let’s also assume that it will take an additional $200,000 to complete the home. Upon completion, the homes value will be $500,000 or greater.
One way that a lender would finance this would be to use a construction loan that disbursed funds as the project progresses. Let’s say the lender will agree to fund 80% of the $500,000. So, the loan balance would be $400,000.
On the purchase closing date, your investment of $100,000 would be applied towards the purchase of the home and the bank would disburse $200,000. That would leave $200,000 in the construction loan account. The title company would disburse the funds to the seller and the current lender, therefore closing out the existing construction loan.
The remaining $200,000 of the $400,000 loan would then be released at different phases of completion of the home to the general contractor to pay contract amount.
This is a very simplified answer to a complex transaction. Consult with a mortgage lender who specializes in custom home construction financing.
Can a construction loan be obtained on a home that has never been completed and has an exsisting construction loan?