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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 requires more financial support than a traditional mortgage can provide.

In this article, Cody Clark, Mortgage Loan Officer at FCCU sits down with us to explain the ins and outs of construction loans. Whether you're looking to build your dream home or expand your business, Cody provides valuable insights into the financial options available for construction projects.

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

Cody: This is definitely the time of year when construction projects ramp up. Spring is when people start digging holes and pouring concrete, aiming to finish by the end of the year or even by the summer. The big difference between construction loans and traditional loans is that with a traditional loan, you're purchasing an already-built home. You walk through it, decide you like it, and buy it as-is. Construction loans, on the other hand, help fund the process of building that house from scratch. Not everyone has $450,000 to $500,000 sitting around to start building, so construction loans help bridge that gap. Once your home is built, we transition the loan into a traditional mortgage.

Katie: If I’m looking to get a construction loan, what types of loans are available? Are they just for new home builds, or can they also cover renovations?

Cody: Construction loans can be used for a variety of projects. I’ve talked to clients looking to stay in their current home but add a new garage or make other improvements. These types of loans are flexible. If you're planning to build a new house, we can help with that. For renovations, if you have enough equity in your home, a home equity loan might be a better option. At First Community, we typically offer one-year construction loans with fixed interest rates. Home equity loans can sometimes be processed more quickly since they don’t require all the planning and specifics that a full construction loan does.

Katie: What are the requirements for obtaining a construction loan, and how is the approval process different from that of a traditional home loan?

Cody: When we evaluate a construction loan, we focus on your ability to repay the loan once the home is completed. We look at what your future 30-year mortgage payments will be, as these will be higher than your construction loan payments. Construction loans typically only require interest payments during the build, but we want to ensure you can handle the mortgage once the home is finished. We understand that interest rates can change, so we’ll work with you if those changes impact your ability to manage the loan.

Katie: How do interest rates typically work for construction loans?

Cody: In North Dakota, it usually takes about 8 to 10 months to build a house. For a construction loan, we provide financing for up to one year. Once the house is finished, we’ll convert the loan into a traditional mortgage, locking in a rate for the long term.

Katie: Can I combine a first-time homebuyer loan with a construction loan?

Cody: Yes, you can! If you haven’t owned a home in the last three years, there are programs through North Dakota Housing that can help. You can also combine an FHA loan with a construction loan if you're a first-time homebuyer. There are various options depending on your situation.

Katie: If I come to you for a construction loan, will you walk me through the entire process?

Cody: Absolutely! The first step is understanding the construction process. We’ll talk about your plans for the house, how much it will cost to build, whether that includes land, and if you already own the land. Once we have that information, we’ll discuss the end financing options to make sure everything aligns with your needs and goals.

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

Cody: Once we have your plans, specifications, and the contractor's estimate, we’ll use that information along with an appraisal based on the land value. We’ll compare similar properties in the area to help us establish the property’s final value and determine the loan amount.

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

Cody: Yes, there are several programs for energy-efficient construction. These could involve better HVAC systems or high-quality windows, which can reduce energy costs. I’d recommend discussing these options with your builder to see what’s best for your project. Additionally, there may be tax incentives for using energy-efficient materials, so it’s worth talking to an accountant about potential savings.

Katie: What else should someone know about getting a construction loan with FCCU?

Cody: Construction lending is one of my favorite aspects of this job. I really enjoy visiting job sites and seeing progress—whether it’s the concrete being poured or walls going up. At FCCU, we also keep track of the budget closely. If there are cost overruns, like if the drywall ends up costing more than expected, we want to keep you informed so you know exactly where the money is going. Ultimately, this loan is yours, and our goal is to make sure you’re happy with the process and the final result.

Whether you're building a new home or making significant improvements to an existing property, FCCU is here to help you turn your vision into reality.

Find a Mortgage Loan Officer near you!

We currently have construction loan rates as low as 4.99% APR*. Learn more about construction loans here.

Listen to more FCCU podcasts, here.

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