I'm just starting this process and will tell you what I've learned (I'm not an expert by any means!). Since you don't plan on building for a while, you will likely need to do a seperate Lot Loan (if you nee to finance the lot purchase) now. Then when you get close to the build process you can research construction loans.

From my experience there are two types of construction loans:
Construction Perm loans
Constrution loans

The Construction Perm loans roll the construction loan into the mortgage (if that makes sense). You have a one time close (so just one time closing fees!), but you have to get your mortgage with that bank. Sometimes there are restrictions on when you can pay off the mortgage (or refinance). This is a good option if you want only one closing, but you can't really shop around for your mortgage since it has to be with that bank.

A seperate Construction Loan is just that - a loan for the construction. When it comes time to get a mortgage, you can shop around. However, this option makes you close two times...once on the Construction Loan and once on the Mortgage. The advantage is you can shop around for your mortgage.

If anyone else has any other info - i'd be happy to hear it since this is all new to me!

Be careful about buying a lot early and then waiting too long to build. That can significantly affect your mortgage interest deduction on your taxes. I have heard that only expenses within 2 years before you *finish* building count as part of the basis for figuring how much you can deduct. But, I am not an accountant or tax adviser, so be sure to check this issue yourself.

One thing you also want to ask if whether or not you can buy the interest.. for example when you get close to completing construction and the interest rates for perm. financing are looking in your favor, you can usually buy that interest rate and lock it in.

Just FYI, we purchased our land with a land loan, then when we were ready a few years later, the land still was not paid off, but the first draw on the construction loan paid off the land loan. This was required by the bank, may be different state to state, I'm not sure. So we started paying a pretty good chunk of interest on that land loan payoff draw. We made the decision to pay the interest as we go, instead of rolling it all into our perm. financing. Just one way to help reduce the perm. mortgage.

MrsGordo is right on. I just got through going through that process. From my experience, hardly anyone does any 1-time construction permanent loans anymore. I called around to about 8-9 local banks and a few internet based mortgage companies and all of the internet based places said, "We don't do one-time close, your best bet is a local bank." Well, all of the local banks said they don't do that anymore.

So, I had to go with a separate interim construction loan, at that point...its just shopping the different rates/closing costs. It varied so much. Some banks charge a point, but if you use them for permanent they credit that back to you. Some of them told me flat out, if they can't get the permanent they don't want to mess with the interim (Since they don't make very much off the interim). The bank I wound up using was referred to me by my builder. He uses them, and has referred other clients to them and never has heard anything negative.

I wound up going with that bank, and it really worked out well for me. They had the best rate, no points (which allows me the option of shopping the permanent), and also they have a relationship with my builder already. So he knows what they need, and they know he does quality work and finishes on time and in budget.

My interim construction loan also encompassed the purchase of the lot. So based upon my total loan amount, the amount I put down paid off the lot and put some in the balance of our building account. Now, if we can just get some DRY WEATHER Q#$(#$@#$!!, we can actually start and i'll start making draws and paying the interest.

So, i'm not sure how it'll work with you buying the lot so far in advance of building. I would call around to some local banks and get some ideas from them. Make lots of notes on who you talked to, the rate, any points charged, application fees, etc so you can look back on the big picture and see who has the best overall terms for your situation.

Don't forget to ask your credit unions too. That is who we went through. Just call and ask about const. loans and they will send you info or stop in and they will explain.

Good Luck!

Yea, credit unions still seem to do them. We did a one time closing in the midst of the crisis with no problems, other than appraisers being snowed under from all the refi's.

FYI....ask to have the builder pay any interest on the construction loan after a deadline. Otherwise, if it takes a year and a half, you're eating that. We agreed on six months, he ate it on the seventh month.There was no activity for alot of days, even a whole week one time. Mismanagement.

We're just waiting to settle on our construction-permanent loan - hopefully next week or the week after. We have to do two settlements (for us too that seemed to be all that was available). That said, we were given the option of locking in a rate for up to 9 months for a minimal fee and it seemed like a good idea.

A couple of points for you to consider: as some have said above, many of the lenders we spoke to have different timeframe restrictions on things particularly how long you have to complete construction, and how long you have to *start* construction. Very, very few here in the mid Atlantic region are interested in doing lot loans, and those that are are expensive.

On the flip side, the area we're building in has an extra tax you have to pay if you've owned the lot for less than one year before you start construction...

I really appreciate it guys! Thanks

I was quoted a 30 yr, fixed rate construction loan that converts over to a regular mortage at 5.6% . One time closing cost of $2200. I asume no points or points included in the closing cost at our credit union in SW Michigan.