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By Heritage Bank on April 13, 2022
2 minute read

Ready To Build Your Dream Home?

Heritage Bank Specializes In New Construction Lending

A home is made of more than wood, brick or stone. It features personal touches that showcase your passions and reveal your priorities.

If you've always dreamed of building a home – whether a custom home or a personalized version of tract housing -- Heritage Bank is particularly equipped to be your financing partner. We offer competitive interest rates and a range of loan types to help you cover both planned and unexpected costs that can arise along the way. Our focus on your community and local decision making also empowers our mortgage loan officers to be more flexible than their counterparts in national or mega regional banks. 

Thinking of Applying for a Construction Loan?

Between the rising prices of lumber and the cost of securing the lot you plan to build on, you are right to worry that conventional financing might not work for you. In this article, we'll help you understand the different types of construction loans available for new home builds and what they typically cover before and after construction.

What Is a Construction Loan?

A construction loan works similarly to a car loan or home mortgage. The bank provides capital up front for you to purchase a product with the expectation you will pay back the money with interest within a specific timeframe.

In this case, a construction loan can help you finance the building of a property, but it may also cover the cost of purchasing the lot, hiring a general contractor and buying the materials needed to complete construction.

There are different types of new construction loans, but the three most popular options include:

Construction-to-Permanent Loan

If your intention is to live at your new residence permanently, a construction-to-permanent loan is an option. You’ll have the funding to cover the building of your property, then once construction is complete, the loan converts into a mortgage.

 One advantage with construction-to-permanent loans are the closing costs. You pay closing costs once and generally have the option to lock-in a long-term fixed rate.

Construction-Only Loan

Just as the name implies, a construction-only loan covers the costs to build your home. After construction is complete, the borrower usually needs to convert the loan into a more conventional mortgage, requiring another loan application and additional closing costs. If you can pay off the money you initially borrow within the maturity timeframe, a construction-only loan might be your best option.

Owner-Builder Construction Loan 

If you are your own builder and general contractor, you should consider an owner-builder construction loan. People with the right skillset and experience can often make the money they invest in the home go further during construction by eliminating the margins built in by professional builders and general contractors.

You’ll pay one closing fee unless you convert the loan to a mortgage later. You’ll also have the flexibility to reimburse yourself for construction-related expenses more easily and may have more timeline flexibility. One caution: You will need to understand the many complexities of the construction project, including building codes, zoning laws, building permits, etc.

Options for Managing Fluctuating Interest Rates

Worried about locking in an interest rate now only to complete construction in a market where interest rates have gone back down? It’s a legitimate worry in our current market. Ask your Heritage Mortgage Loan Officer about options loan options or contract stipulations that allow a homeowner to benefit from future rate reductions.

Choosing a New Home Construction Loan

Building a new home is exciting but also a bit daunting. Building rather buying an existing home involves more decisions, more waiting and more variables. That’s why choosing the right lender makes all the difference.

Mortgage Loan Officers based in your community just one call or text away from a local decision maker are empowered to respond to local market conditions and factor in unique circumstances other lenders cannot and will not. Talk to a Heritage Bank Mortgage Loan Officer today.


Published by Heritage Bank April 13, 2022