This structure is called a 'two-step' or 'two close' loan. A local bank typically provides the construction financing with periodic draws.
Monthly interest payments are made to the bank. At completion, a 'take-out' permanent loan is obtained from the bank or a mortgage broker.
The two-step structure is commonly available and widely used. The principal disadvantages are:
There are two sets of closing costs (usually title insurance, documentation and loan fees).
Transfer or stamp taxes are not minimized.
Construction cannot begin until all requirements for the take-out financing are completed.
Your situation (employment, cash reserves, family situation) may change before your permanent loan closes, and you may no longer qualify for the loan.
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