State Savings Bank

Home Construction Loans Frequently Asked Questions

What is the loan structure of a construction loan?

Construction loans are ‘closed-end lines of credit,’ meaning you advance money off the loan as you build the house.  It is not a revolving line of credit like a credit card where you advance off the line, pay it down, and then advance off the line again.  Payments on the construction loan are monthly interest only, so at the beginning of the loan you pay a smaller amount of interest than you do at the end when you have more money drawn off the line.

How does a mortgage loan differ from a construction loan?

A major difference between a regular mortgage loan and a construction loan is the need for plans and specs of the house you plan to build. Plans are the building blueprint or drawing of the house; specs are the cost breakdown for its construction. For example, how much will the foundation cost? It is important to obtain the plans and specs as soon as possible in the construction loan process because your lender needs to give this information to an appraiser to determine the "as-completed" value of the house to be built.

A second difference is the way the money is disbursed. With a mortgage, funds are disbursed all at once when the mortgage is approved and the homeowner is ready to move in. In the case of a construction loan, the loan is approved before construction begins, and the money is disbursed in phases as construction progresses. Interest is only charged on the amount disbursed.

Can I be my own General Contactor (GC)?

State Savings Bank does allow individuals to work as their own GC as long as they have relevant construction experience.  A resume or proof of previous houses built may be required.

How do construction draws work?

SSB requires invoices from the GC and sub-contractors for each construction draw as well as fully executed lien waivers on work previously completed.  SSB lenders will also make regular inspections of construction in order to verify the work we are advancing for has been completed.  This is done in order to protect both the borrower and the bank.

At what point can I lock in an interest rate on my end loan?

In general, we recommend locking in the interest rate on your end loan (15 or 30 year fixed rate loan) when your house is 30 days from being 100% complete.  The maximum interest rate lock period is 60 days, so the final 30 days of construction takes up the first half of the rate lock period and the second half of the rate lock period allows time for the appraiser and underwriting to take place.  Communication between the lender, homeowner, and builder are very important in this phase to avoid paying interest rate lock extension fees.

If I own my lot/land, does my equity count towards my construction loan down payment?

Yes. The equity you have in the lot/land you want to build your home on counts towards the 20% down payment required for the construction loan.

What are my monthly payments on a construction loan?

Monthly payments on a construction loan are interest-only based on the amount advanced on the loan. In the beginning, your monthly payments will be less but will steadily increase as construction progresses and more money is drawn off the loan. You can calculate an approximate interest-only payment in the following way: Multiply the dollar amount advanced on the loan by the interest rate expressed as a decimal, and then divide that amount by 12. This is not an official calculation, it will not equal your exact payment and is not legally binding, it is simply a way for you to estimate what your construction loan payments might look like as your home construction progresses.

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