When Do Mortgage Payments Start When Building A Home: A Comprehensive Guide

Reading Time: 7 minutes

Building a home is no small feat, and neither is navigating the financial labyrinth that accompanies it. When Do Mortgage Payments Start When Building A Home is a question that pops up in the minds of many first-time builders. In fact, according to the U.S. Census Bureau, over 840,000 new homes were started in 2020 alone. That’s a whole lot of folks scratching their heads about mortgage payments! So, whether you’re a budding homeowner or just plain curious, you’re in the right spot. 

The Basics of Home Construction Mortgages

For many, the idea of building a home feels as daunting as a mountain climb without the right gear. Yet, knowing your equipment can change everything. In this metaphor, your gear is understanding construction mortgages.

Construction Mortgage Type Description
Construction-Only Loans Short-term loans that cover only the construction phase. Interest payments are typically made during this phase. Once construction is complete, the loan ends, and a new mortgage might be required.
Construction-to-Permanent Loans These loans start as construction loans but seamlessly transition into regular mortgages after construction is finished. This type offers convenience as it avoids the need for refinancing.
Construction-to-Sell Loans Intended for builders who construct homes for sale. The loan covers both the construction and selling phases. Once the home is sold, the loan is repaid.
Construction-to-Rent Loans For builders planning to rent out the completed property. These loans cover construction and can be refinanced into a permanent mortgage or another financing option after construction.
Renovation Loans Not just for new builds, these loans cover renovations and repairs on existing homes. Funds are released incrementally as work is completed.

A construction mortgage, in its simplest form, is a loan provided for the purpose of constructing a home. Sounds simple, right? But wait, there’s a plot twist.

While your regular Joe home loans help you buy homes already standing tall, construction mortgages are like the fairy godmother of loans, sprinkling cash as the home is being built. You can dive deeper into this magical world of mortgages on our New Construction Home: When Is Down Payment Due?

So, how many flavors does this fairy godmother come in? A couple actually. From construction-only loans, which are short-term loans that cover just the construction, to construction-to-permanent loans that transform magically (not really, it’s just banking) into a regular mortgage after the home’s completion. Choosing the right flavor depends on how adventurous (or risk-averse) you are.

Construction Mortgage Journey

When Do Mortgage Payments Start When Building A Home

The million-dollar question! Or, depending on your dream home’s price tag, perhaps a bit more than a million.

Once you get a construction loan, lenders typically employ a draw system. Imagine it as the lender’s personal episode of “Pay As You Go: Home Edition.” As your home starts taking shape, the builder will ‘draw’ portions of the loan amount. After each draw, you get the pleasure (read: obligation) of making interest payments.

During this construction phase, many loans offer an interest-only period. This sounds fancy but simply means you’re only paying off the interest, not the actual loan amount. It’s like enjoying the appetizer without touching the main course yet.

However, be warned. The first real bite after the appetizers, the first mortgage payment after the house is complete, might seem bigger than expected. That’s due to the accumulated interest during the construction phase. Think of it as the food coma after binge-eating at an all-you-can-eat buffet.

Wondering more about these appetizers and main courses? Dive into the scrumptious details of when the mortgage journey actually starts with a new construction home.

Building a home, much like a perfectly baked soufflé, is an intricate process. But with the right ingredients, like understanding your construction mortgage, you’re set for a delightful experience. Bon Appétit!

The Importance of Down Payments

Ever heard the saying, “Money talks?” Well, in the world of home construction, a down payment is your money’s debut speech. And trust me, it has quite the microphone!

In essence, a down payment is your golden ticket into the Willy Wonka factory of construction loans. It shows lenders you’re not just dipping your toes in but diving headfirst into the property pool. It’s a sign of commitment, much like getting a matching tattoo with your BFF, but financially more significant (and less painful).

This isn’t like buying a pre-built, ready-to-move-in home. It’s a complex tango, and the down payment is your dance deposit. The more you put down upfront, the less the lender risks, and consequently, your subsequent mortgage payments may be more manageable. If you’re curious about the choreography of these payments, delve into the intricacies here.

Scheduled Draws and Payment Deadlines

Building a home isn’t a sprint; it’s a marathon. And like every long race, there are refreshment stations along the way. Enter scheduled draws.

Instead of lending you the entire construction loan amount upfront, lenders release funds in parts or “draws”. These draws align with significant construction milestones. Think of them as your home’s growing-up milestones, just minus the awkward teen phase.

So, what are these milestones? They typically kick off with the foundation completion, progress to framing, and culminate with the home’s finishing touches. Each milestone completed is like checking off a stage in a video game. But instead of collecting coins or beating bosses, you’re moving closer to your dream home.

Scheduled Draws And Payment Deadlines

How does this tie into your payments? Simple. Each draw triggers a payment from your end. It’s like paying in installments for a product, but in this case, the product is your brick-and-mortar dream.

Understanding Home Construction Loan Mechanics

Let’s kick things off with a fun fact: construction loans are the adrenaline junkies of the mortgage world. Why? Their high-energy, short-term nature. They’re a tad different from your typical mortgage, as they’re essentially your home’s “baby years,” meant to finance the build phase.

Construction loans are not the ‘marathon’ kind, they’re more like the ‘sprint’ type. They’re typically set up for a 12-month term, with the idea that by the time the term is up, your home is standing tall and ready for its debut.

But wait, there’s a plot twist! Once your home is complete, this loan doesn’t just bow out and leave the stage. It transforms, like a finance butterfly, converting itself into a permanent loan. Think of this as its graduation – from temporary financing to long-term investment. It’s like changing from workout gear to evening wear, but for loans. For a deep dive into this metamorphosis, click right here.

Potential Pitfalls and How to Avoid Them

Building a home is like baking a souffle. One wrong move and things can deflate really fast.

One of the common ‘culprits’ of the construction world? Delays. Maybe it’s a hold-up with permits or some unexpected weather drama (rain has no respect for schedules!). Delays don’t just test your patience; they can also impact your payment schedule.

Next on the list is the dreaded budget overrun. It’s the “I’ll just have one more cookie” of construction. It starts small – a fancier tile here, a window upgrade there – but these little overages can snowball, leading to a potential financial avalanche.

So, how does one navigate these murky waters? Communication. Make it your mantra. Regular chats with your lender can ensure both of you are on the same page, and they can advise you if they see you heading toward the edge of a cliff. Or for a cheat sheet on handling down payment hurdles, this link might just be your holy grail.

Expert Tips for a Smooth Home Construction Mortgage Experience

Ever wished for a fairy godmother in the construction world? While I can’t give you that, I can offer the next best thing: some expert tips.

Contingency reserve, ever heard of it? It’s not a fancy new spa treatment. It’s a financial buffer you set aside for any unplanned expenses. Think of it as your rainy day fund, but specifically for building-related surprises.

Lastly, ever thought about rate locks for transitioning to permanent financing? It’s like reserving a great seat at a concert, ensuring you get a fixed interest rate before the performance (read: construction) ends. For a deeper dive into nailing down those finances, look no further.

While building a home might seem daunting, with the right knowledge and a sprinkle of humor, you’ll be paving your path to property success in no time!

Expert Tips for a Smooth Home Construction Mortgage

Frequently Asked Questions

When exactly do mortgage payments start after beginning home construction?

Payments typically commence once the construction is completed and your permanent mortgage kicks in. This is often termed as the “end” of your construction loan period.

Are there any interim payments during the construction?

Yes, during construction, you’re usually required to make interest-only payments based on the amount disbursed, not the full loan amount.

Does the mortgage type affect when the payments start?

Absolutely! Different mortgage types, like fixed-rate or adjustable-rate, might have varied terms for when payments begin.

What role does a down payment play in this process?

A down payment, typically a percentage of the home’s cost, is crucial. It not only secures your loan but can also affect subsequent mortgage payment amounts.

Are there potential delays that could affect my mortgage payment’s start date?

Yes, construction delays, permit hold-ups, or unexpected challenges can push back your start date for regular mortgage payments.

Can I choose a specific date to start my payments?

While some flexibility exists, the start date is generally linked to the completion of construction and loan conversion.

How does accrued interest factor into my first payment?

Accrued interest from the construction period can make your first few mortgage payments larger than subsequent ones.


The journey from construction chaos to the calm of a completed home comes with its financial intricacies. Now that you’re familiar with When Do Mortgage Payments Start When Building A Home, you’re better equipped to navigate this adventure.

Thank you for reading!