Depending upon the size of the new property you’re building as an investment as well as any custom design features you install, the construction period of the home might take anywhere from six to twelve months. Longer if the project is of larger scale. Your construction lender will approve yourlong term rates for construction loans construction loan request then transfer construction funds to the builder as the job progresses.

Your construction loan will accrue interest at each draw then once the home has been completed most construction loans require you to replace the existing note with a conventional, permanent home loan if you’re keeping the property for the long term. Yet if you’re just now starting to build a new investment property and the builder says it will take 12 to 16 months to finish, what happens to the mortgage rate for the permanent replacement mortgage?

Some construction lenders want to see evidence of a preapproved mortgage application. This is the mortgage that will replace the construction loan. That means you must apply for permanent financing then wait while the home is being built. During that time, mortgage rates will go up and go down in cycles. And depending upon which side of the cycle you’re riding, that might be either a good thing or a not-so-good thing. A not-so-good thing if rates are moving up and a good thing if rates are falling. How do you lock in your permanent rate while your home is being built?

Different lenders have different policies regarding locking in a rate but they all follow the same general path. The longer the lock, the more expensive the rate will be. For example, if you can find a rate good for 30 days today at 5.00 percent with no points you might find a lender who will lock that rate in for say 90 days but it will cost you two points to do so. The sooner your home is to be completed, the lower your rate may be. Work with your lender and clearly understand your options regarding locking in your rate. You don’t want to let them get away from you.