Loan types
Construction loan
A loan that funds a home build in stages (draws), often converting to a permanent mortgage at completion in a single closing.
What does construction loan mean?
A construction loan finances a home that doesn't exist yet, releasing money in draws as the build hits milestones, with interest paid on the drawn balance.
The strongest structure is one-close construction-to-permanent: a single closing covers both the build and the mortgage it becomes. Expect about 20% down on the completed appraised value, and the lender vets the builder as closely as the borrower.
How the draws work
On a $285,000 build, the lender might release funds in four or five draws — foundation, framing, mechanicals, and completion — inspecting each stage before the next payment. You pay interest only on what's been drawn, so early payments are small and grow as the house takes shape.
Common questions
What is a one-close construction loan?
A single closing that covers both the build and the permanent mortgage it converts to at completion — so you lock terms once and avoid a second set of closing costs. It's the cleaner structure because you aren't re-qualifying and re-paying fees after the home is finished.
How much down payment do construction loans need?
Around 20% of the completed appraised value, plus a vetted builder and a fixed-price contract. Interest is paid only on the drawn balance during the build, so the payment climbs as more of the loan is released.
Which Michigan lenders offer construction loans?
Flagstar, Lake Michigan Credit Union, and many community banks and credit unions. The big online retail lenders generally don't, so it's a more local market where an established relationship helps.
Related terms