Construction Loans: 6 Tips for Simplifying the Process

BY CLINT ZIEGLER, Assistant Vice President – Mortgage Loan Officer at State Bank of Cross Plains

With the current inventory of homes for sale in Dane County down more than 10 percent from last year at this time, many people on the hunt for a home are considering building as another option for their situation.

While there are distinct pros and cons for both building and buying a home that make either option a viable solution, the financing process can be more complicated to navigate when building. 

Consider all Expenses

When applying for a typical mortgage to purchase an existing home, the total out-of-pocket cost likely includes:

  • Down payment
  • Monthly mortgage payments based on interest rate and purchase price
  • Closing costs
  • Possibly the cost of a moving truck rental or moving company assistance

These minimal considerations make it easier to predict your total financial outlay. In contrast, the expenses associated with building a home might include:

  • Purchasing a lot
    • Paying a builder at intervals during construction
    • Rental fees versus dual mortgage – with unpredictable schedules due to weather or supply chain issues, you often have to choose between renting during the interim of selling your existing home and moving into the new-construction home OR carrying two mortgages if you wait to sell until after construction is complete
    • Rental space for existing furniture and belongings
    • Monthly mortgage payments based on interest rate and purchase price
  • Closing costs
  • Possibly the cost of a moving truck rental or moving company assistance

When you look at the extra steps that have to be coordinated while trying not to add significantly to the comparable purchase price, it is clear that working with an expert who can guide you through the process would be especially important.

Simplify for Success

The reason this process feels complicated is because it is not something you do every day. Luckily, there are mortgage loan professionals with expertise and experience in construction loans who can help.

That said, choosing the right lender to partner in the process can make a big difference. Here are some reasons why choosing a local community banker can often simplify things for all involved:

  1. Construction financing expertise. In a region that is used to growth and development, local community banks have developed construction loan expertise along the same trajectory.
  2. Personalized attention and service. Local banks like State Bank of Cross Plains have the bandwidth and the corporate culture to prioritize customers in the communities where we live ourselves. We are excited to assist with the growth and development of our service area.
  3. Local knowledge and relationships. Large national banks often make builders jump through a lot of unnecessary hoops, slowing down the approval process. In contrast, independent community banks like State Bank of Cross Plains know and have already worked with most builders in South Central Wisconsin, streamlining the process.
  4. Flexible down payment options. Cash flow can be a hurdle during construction. For example, SBCP can provide a HELOC (Home Equity Line of Credit) on your current home for the down payment on your construction loan.
  5. Interest-only payments during construction. Since there may be a delay between the start of your home construction project and getting the payout from the sale of your existing home, State Bank of Cross Plains offers monthly interest-only payments for your construction loan balance. When you’re ready, the transition to a traditional mortgage loan is fast and easy.
  6. Low rates. Having a proven process and strong history of providing local construction loans means we don’t consider this transaction a big risk. Most local community banks offer interest rates that are competitive – or sometimes even lower – than our national bank counterparts. 

By keeping these considerations in mind, you can make the journey of heading down the road to home construction a lot smoother (and a little more fun).

Want more in-depth information about the specifics of what a construction and lot loan might look like? Read through these frequently asked questions (FAQ) to learn more. If you have additional questions or would like to initiate a construction loan application, contact an experienced lender at your local State Bank of Cross Plains.


Clint Ziegler
AVP – Mortgage Loan Office

State Bank of Cross Plains