If you’ve been in the market for a construction loan lately, then you’ve probably started to pay attention to the advertisements on the radio and the internet. New construction for rental properties or to sell for a profit is a new trend and investors around the country are exploring this avenue.no closing cost construction Sometimes those advertisements tout a construction loan with no closing costs.

Sounds attractive, doesn’t it? Especially if you remember the closing costs you encountered on your last deal. Which banks offer no closing cost construction loans and how can they do that, anyway?

It’s a great marketing tool but the reality is any bank can put together such a package and in most cases it’s the way to go. If your closing costs add up to $4,000 for items such as title insurance, appraisals and settlement costs, those fees are ultimately deducted from your net profit once you sell. Would you rather have $46,000 in your pocket or $50,000? That’s what a no closing cost construction loan can do.

When you first speak to y our bank about a construction loan, one of the first things you’ll ask is “What are your rates?” You will then be given a few choices over a relatively tight range. You might even be offered to lower the rate still by paying a point, or one percent of the loan amount. Yet that never makes sense to add costs to lower a rate by say ¼ of one percent. But it might make sense to raise your rate by ¼ percent and have a no closing cost loan. In exchange for a higher rate, your bank might be able to cover part or all of your one time closing fees.

And because construction loans typically last for less than one year, the difference in accrued interest between two rates is marginal compared to the amount in closing costs you could pay.