Mortgage rates for new construction have been pretty much in the same boat as rates for a permanent loan. They've been in the same range for quite some time and rates from one bank to another are almost very nearly the same. When real estate investors finance new construction, two loans are fees matter when comparing construction loanstypically necessary.

The first for the actual construction of the new property then a second loan to replace the construction note once the home is completed. The permanent mortgage can be from the investor or from a buyer. Either way, the construction portion must be replaced. But when shopping around for a construction loan, what should you look for?

Construction loans are fairly straightforward. The bank will review the request based upon the numbers provided by your selected builder. The bank will order an appraiser who will view the property as if the home has already been completed along with value of the land. The bank will approve the loan then issue amounts to the builder in incremental stages as the home is being built. At each issuance of funds, the interest rate for the construction note is then used to calculate the amount of interest due the bank. The longer the funds have been issued, the more interest you will pay. That pattern is generally the same no matter where you go.

To compare different construction loans, you must look beyond just the interest rate. Banks are very competitive in the current environment so expect rates for construction loans from bank to bank to be quite similar. The same in most cases. Yet in addition to the rate the bank will have fees. The fees will be for an appraisal and credit report. There may be additional fees charged for things such as underwriting and document preparation fees. It’s these additional fees that need to be examined before selecting your construction lender and are very often the items that helps you choose your bank.

A bank’s fees aren’t necessarily set in stone. Question each fee and ask that it be waived if not reduced. Fees are charged to offset overhead but in a competitive situation, they can be removed. Especially if you suddenly decide to move your accounts to the bank that’s quoting on your construction requirement.