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Embarking on a construction project, whether it's building a new home, renovating an existing property, or constructing a commercial space, often necessitates financial support beyond what traditional mortgages offer.

Cody Clark, Mortgage Loan Officer at FCCU sat down with us in a recent podcast to explain all about construction loans. Whether you're considering building your dream home or expanding a business, we're here to help you with all your construction related financial needs.

Katie: Could you explain to our listeners the difference between construction and traditional mortgages, because we’re seeing just more and more construction happening already.

Cody: This is kind of that time of the year, spring is when everyone really starts revving up for the year on construction projects. If you have something lined up now’s a good time to dig holes and get concrete poured. It’s nice to get those things done so you can get into your home towards the end of the year, maybe even the end of the summer. The big difference between construction loans and traditional loans is your more traditional loans are going to be on a house that’s already pre-built. You walk through the house, you like it, and you buy that actual house. Construction lending is a little bit different so we will do that construction loan to help you build that house, because let’s face it not everyone has $450,000 to $500,000 just laying around to get that process going and so we’ll help with that. And then when that house is built, that’s when we flip it over into a traditional mortgage.

Katie: If I’m looking to get a construction loan, what kind of loans are available for people? Is it just because I want to build a new home or can I renovate an existing one?

Cody: Yes, so any kind of construction loan fits lots of different needs. I’ve talked to a lot of people that want to stay in their current home and add on a 4 stall garage to their house or add a new addition, so we can look to do a loan off of that. Or same thing, if you’re looking to build a completely new house we look at construction loan options. But another option is for those renovations, and if you have enough equity in your house you can look at doing a home equity loan instead. So the construction loans for us at First Community are typically termed out for a year, they’re on a fixed interest rate. With a home equity loan, sometimes that process is a little bit quicker because we’re going off of just your house, and we’re not going off of all the different plans and specs that you’re needing. 

Katie: If I am going the construction route, what are the requirements for obtaining a construction loan and how is that approval process different from a traditional home loan?

Cody: What we look at is the payback ability, so what we’re doing is we’re anticipating what your 30 year mortgage is going to look like, because that payment is going to be higher than what your construction loan will be. The construction loan is just going off the accrued interest. We want to make sure that before your dream house is even built that you’re going to be able to afford it. Yes interest rates change, we 100% get that, so we’ll work with you throughout any huge changes like that. 

Katie: So you mentioned interest rates, how do they typically work for construction loans then?

Cody: On construction loans we do, typically in North Dakota it is probably 8 to 10 months to build a house. So for that construction loan we have that out there for 1 year. As soon as the house is done being built, then we’ll term that loan into the traditional mortgage. 

Katie: Can I use a first-time home buyers loan and a construction loan together?

Cody: We can do a construction loan at the beginning. If you haven’t owned a house in the last three years, there are different programs with North Dakota Housing that can use. If you do an FHA loan, you can still qualify for that first-time home buyers loan with a construction loan. There are always different options for people.

Katie: If I come to you and want to get a construction loan, will you walk me through all the steps?

Cody: Absolutely. We start with the construction process first. That includes what that house looks like, how much will it cost to build, does it include the land, do you own that land, etc. Once we have a grasp around that, then we start talking about the end financing. We always want to make sure we keep that top of mind and find something that fits your needs.

Katie: How does the appraisal process and determining the property value affect the construction loan from your end?

Cody: Once we have the plans, specs and estimate from your contractor, that will help us. Also, we do the appraisal based on the land as well. We use comparable in the area, and more to help us figure out the numbers.

Katie: Are there any incentives or programs available for energy-efficient or sustainable construction projects?

Cody: There are a lot of different programs out there with energy efficiency. Whether it’s on the HVAC or better-quality windows, there are options for saving money and being more energy efficient. I would suggest talking with your builder about these options to see what might fit you the best. Also, there are tax implications for those energy-based items that you put in your house, so it’s also a good idea to talk to your accountant.

Katie: What else are we missing and what else should someone know about getting a construction loan with FCCU?

Cody: Construction lending to me is a lot of fun. I really enjoy going to site visits, seeing the concrete get poured, walls go up, etc. When we do construction lending here, we do these site visits to make sure that as our borrower, things are getting done as they say they should. The other part of construction loans and our process is the budget. We talk about the budget a lot. For example if the contractor said drywall was going to be a certain amount, but then we get a bill for $1,000 more, we want to keep track of everything so you as the borrower are aware of what is going on and what you’re being billed for. At the end of the day, this construction loan is yours and we want to make sure you’re happy with it.

Find a Mortgage Loan Officer or learn more about construction loans here.

Listen to more FCCU podcasts, here.