Carrying the Cost of the Construction Loan

Building a new home can be an exciting milestone in life! But all the excitement is sometimes coupled with overwhelm – especially when it comes to financing. Many homeowners are surprised to learn that building a new construction home often comes with the added financial burden of a construction loan.

At Eastbrook Homes, we believe the process of building your dream home should be as stress-free and accessible as possible. To help break down some of the barriers for our customers, we carry the cost of the construction loan for you. This is just one of the many ways Eastbrook makes the building process easier for our customers!

In this blog, we spoke with Becky from Lake Michigan Credit Union (LMCU) to provide an expert perspective on construction loans. Let’s take a look at what a construction loan is, the costs associated with it, and how Eastbrook offers a smarter path forward.

What Is a Construction Loan?

To understand the value of Eastbrook’s loan structure, it’s crucial to understand what a construction loan is and the costs associated. Becky explains that a mortgage construction loan is a short-term, specialized financing option used to fund the building of a new home. Unlike a traditional mortgage, which provides a lump sum for an existing home, a construction loan is disbursed in stages – known as draws – as the project progresses.

“These funds are typically used to cover costs for land, labor, materials, permits, and other construction-related expenses,” said Becky. “Once the home is completed, the construction loan is converted into a traditional mortgage.”

Construction Loan Vs. Mortgage Loan

The biggest difference between a construction loan and a mortgage loan is the costs associated. While construction loans serve an important purpose, they often come with added expenses. Becky notes that closing costs alone are typically about $1,200 higher than a traditional mortgage. 

These costs could include:

• Additional Appraisal Fees: Because the home is built in stages, multiple appraisals may be required to assess progress as a checkpoint to release funds or “draws” to the builder.
• Draw Fees: Title companies charge fees each time a portion of the loan is released to fund ongoing construction work.
• Title Fees: Construction requires frequent title updates to ensure clear ownership and reflect changes as work progresses.
• Survey Costs: A land survey may be necessary to ensure compliance with local zoning and construction regulations.

“These extra steps and safeguards, while important, can significantly increase the overall cost of financing a new home through a construction loan,” Becky explained. 

The biggest difference, though, lies in interest payments. These can add up quickly depending on the loan size, down payment, and number of draws taken by the builder. Becky estimates that interest payments on a construction loan could range anywhere from $8,000 to $10,000.

How Eastbrook Simplifies the Process

At Eastbrook Homes we’re proud to offer our homeowners a simpler, more comfortable process. Instead of requiring customers to navigate a construction loan on their own, we manage the upfront construction financing on their behalf. This means when you build with Eastbrook, you avoid the extra fees and unpredictable interest payments tied to a construction loan, while gaining peace of mind about your budget.

Clint Forester from Fifth Third Bank shared his opinion on the program:

“Eastbrook is one of the most unique and few builders in the industry that holds what we call the ‘paper’ or loan cost until the end of the building process. This gives the customer the unique and great advantage of not only avoiding the cost of a construction loan, but also not making payments until the home is 100% completed.”

Clint explained that this approach not only saves homeowners tens of thousands of dollars but also creates flexibility. For example, if you’re selling your current home, you can use the net proceeds from that sale toward your new build – without worrying about carrying both a mortgage and construction loan at the same time.

Another key benefit to building with Eastbrook is locked-in pricing. Before construction even begins, your home price is set, so you know exactly what to expect in terms of monthly payments. That means no surprises, no guesswork, and no sleepless nights wondering how interest rates or fees might impact your budget mid-build.

Build Smarter with Eastbrook

Building your dream home should be an exciting time! While any long-term project will have its paperwork and choices, we at Eastbrook Homes do everything we can to protect the joy in the homeownership journey. With Eastbrook’s unique financing structure, you can focus on fun parts, like choosing the finishes, designing unique spaces, and preparing for move-in day. We’ll handle the heavy lifting on construction costs.

Are you ready to experience the Eastbrook homebuilding process for yourself? Check out our Homeowner Highlights or Building New Journeys segments to hear about others’ experiences. Explore our modifiable floor plans, or browse our gorgeous model homes. Connect with us to start breaking ground on your dream home. It’s easier than you might think!