Construction Loans

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About Construction Loans

When looking for the perfect home, you may decide to build a house from the ground up. GTE Financial’s Construction Loan offers the convenience of a one-time loan application, loan approval, process documentation and loan closing that will cover both the construction and permanent mortgage once you move in. This will save you from having to apply and be approved for two separate loans.

The Construction Loan offers a building “draw period” where the lender will disburse loan funds during the course of construction based on an inspection of the property and on an estimate of time to completion. During the draw period, the owner is responsible for interest payments only. Once the home is finished, with a final inspection and certificate of occupancy, the loan will transition into the permanent mortgage loan. At that point, standard mortgage payments based on the permanent loan Annual Percentage Rate will begin.

As part of the building process, in order to obtain a Construction Loan, some of the steps you may need to perform include:

  • Purchase a piece of property to build your home on.
  • Obtain the permits needed to start construction.
  • Hire an architect or builder to develop the home plans for you.
  • Hire a lawyer to prepare any necessary legal documents.
  • Hire a builder or contractor to complete the construction of your home.
  • Create a construction budget and a construction timeline.

Homeowners will typically apply for a construction loan once permits are in place. When trying to estimate how much a home building project will cost, here are some factors:

  • The land you are building on, considering factors like city, county and state.
  • Home design.
  • Construction cost.
  • Cost of financing.


3/1 ARM Construction Loan

Description: This is an Adjustable Rate Mortgage used for the construction and occupancy of a new home. With this ARM product, your Annual Percentage Rate will stay the same for the first 3 years of the loan versus changing every year. After 3 years, the rate will adjust annually, depending on the market. Payments are interest only for the 12 month construction period. The principal and interest payments with a 3/1 ARM are typically lower than a standard 30 Year Fixed Rate loan. Conversion to a 30 Year Fixed Rate loan is available upon receipt of the certificate of occupancy.

Best Choice If:

  • You are planning to build a home.
  • You are looking to enhance your buying power, and you want to take advantage of a lower initial rate versus a Fixed Rate loan, but at the same time, want to know your rate will be stable for the first 3 years.
  • The 3/1 ARM allows for your payment to be low and interest only during the construction phase (12 months) of the Construction Loan. However, if construction is not completed within the 12 month period, repayment of the loan must begin with regular principal and interest payments based on the 3/1 ARM Annual Percentage Rate until completion of the home. Once completed, conversion to a 30 Year Fixed Rate loan may be available.

Other Features:

  • Rate caps = 2% per adjustment and 6% over the lifetime of the loan. A rate cap is a limit on how much the rate can change at the end of each adjustment period over the life of the loan.
  • Index = 1 Year LIBOR
  • Margin = 2.625%
  • Fixed rate conversion option may be available on the 1st, 2nd and 3rd adjustable dates only.
  • Conversion to a Fixed Rate home loan may be available on the 1st, 2nd and 3rd adjustable dates only.
An example APR for a 3/1 ARM Construction Loan is 4.721%. An example monthly mortgage payment is $544. The example quotes are based on a property value of $200,000 and a loan amount of $100,000 for 1st mortgage options and a $10,000 2nd mortgage. The Annual Percentage Rates (APR) stated is an estimate and is intended for informational use only. Your actual APR may vary based on your actual loan amount. Please visit the Loan Consultant for additional information about our rates and fees. Rates are subject to change without notice. Your actual rate and/or points may be different, as many factors are evaluated for a loan approval.