Construction Financing

Construction financing is different from other types of loans for a couple of reasons.

First it is considered temporary financing and that is why Fannie Mae and Freddie Mac, the primary source for fixed rate mortgages, will not fund construction loans. The financing will need to come from a lender who will use it's own money, often called portfolio lending. Portfolio lending is either an adjustable rate mortgage or a slightly higher rate fixed mortgage.

A construction loan is also different in that an appraisal is done on a proposed property that has been bid out for the specifications of the home. A fairly accurate budget needs to be in place prior to close so that the right amount of money will be held in escrow for the funding of the project and so that the appraisal will be as accurate as possible.

During the construction of the home the builder will need to work with the title agent as well as the bank in order to request the money needed for materials on site and work that has been done. It is typical for a builder to request three to four draws during the building of the home. During construction the customer will pay interest only on what was been drawn. Upon completion of the home the customer's loan will go into a principle and interest repayment period of time. The customer can also choose to refinance at that time if there are better options available.

For more information about construction loans please contact Julie Braunschweig from Bank Mutual at 920-660-3721 or email julie.braunschweig@bankmutual.com.