Questions about Home Construction Loans?
We have answers.
General Questions about Home Construction Loans
What is the difference between a Home Mortgage Loan and a Home Construction Loan?
Home Construction Loans provide for up to a year to build, with interest-only payments during the draw period, and then are paid off over the remaining term. Standard Mortgages for a purchase or refinance require both principal and interest payments throughout the life of the loan.
What Home Construction Loan products does Great Midwest Bank offer?
We offer a variety of Adjustable Rate Mortgage (ARMs). These products include a “One-Time Closing” provision with a construction period of up to a year. The rate is locked for the initial term. Ask a loan officer for our current rates and programs.
How much does a construction loan cost?
Standard costs are similar to a loan to purchase a home, but there may be an additional one-time fee for optional Owner’s Title Insurance. The cost of this insurance is based on a standard statewide schedule. Ask a loan officer for details.
Can I start building before selling my existing home?
Depending on your financial situation and/or home equity position, you may be able to do so. This assumes that your income supports both monthly mortgage payments along with any other monthly debts. Ask a loan officer about a Great Midwest Bank Home Equity Line of Credit on your existing home.
Home Construction Loan Process
If my builder requires a deposit, how is that handled?
A builder deposit is the funds you pay the builder at the time of contract and can be non-refundable. It will be applied to your down payment when you close your construction loan. Deposit amounts vary.
How does the draw process work?
A builder’s construction schedule usually accounts for 4-6 construction draws. The dollar amount of each draw will vary depending on the work being done. You must first approve each draw through a title company which verifies the work performed. The request is forwarded to the bank who in turn provides funds to the title company. They then disburse those funds to the builder, who pays each subcontractor and material provider.
Home Construction Loan Payments
What can I expect for payments during construction?
You can expect to pay the interest on the outstanding principal balance. However, you can choose to pay on the principal as well.
Will I need to insure the new home during construction?
You should insure your home even while it is under construction. Ordinarily, the coverage you need for a home under construction is dwelling and fire coverage. This covers the structure against the perils named in the policy. Additionally, a bank typically requires “Builder’s Risk” coverage. Your insurance provider can offer more details.