Home construction loan perm question

[jeebuss31]

Hey guys,

I've been talking with a builder and mortgage lender for the last week. The builder suggest we do a home construction perm loan because the benefit we get: pay lower closing cost,lock rate, and only have to put 5% down. But I know there is a disadvantage, could anyone explain? I think I have to pay the interest for the time of the home being built.

My other choice I'm leaning on: to pay 10% to the builder to start building and once finished, the 10% will go into the closing cost in the end. We can then add more money if want and lock into a rate then. What do you guys think? What's the best method I could do during the 6 month of home building?

[JasonEngler]

Hey guys,

I think I have to pay the interest for the time of the home being built.

We just built a new home using a construction loan. We claimed the interested paid on the loan on our taxes to reduce our overall tax bill. Additionally, which probably isn't the norm, they made the payments for us and we had a locked rate throughout the life of the loan (during construction). After the home was built the loan constructions was "modifed" into a traditional mortgage with a fixed rate. No complaints so far... also I think a construction loan guarantees the builder certain liabilities, in case you flake out on the deal.

Note: We had 30% down payment once the loan was modified to a traditional mortgage, so not sure where they came to play.