When Do You Pay Closing Costs On A Construction Loan?

If you’re planning to build a new home, you may be wondering when you’ll need to pay closing costs on your construction loan. These fees can be a significant expense, so it’s important to understand when they’re due and how…

If you’re planning to build a new home, you may be wondering when you’ll need to pay closing costs on your construction loan. These fees can be a significant expense, so it’s important to understand when they’re due and how they’re calculated.

Generally, construction loan closing costs are paid at the closing of the loan, which typically occurs when the construction is complete. However, there are some exceptions to this rule, and certain fees may need to be paid before or during construction. In this article, we’ll explore everything you need to know about paying closing costs on a construction loan.

When Do You Pay Closing Costs on a Construction Loan?

When Do You Pay Closing Costs on a Construction Loan?

If you are considering building a new home, you may be wondering about the costs involved in the process. One of the most significant expenses is the closing costs on your construction loan. Closing costs are the fees and charges associated with the transfer of property ownership from the seller to the buyer. In the case of a construction loan, the closing costs are associated with the financing of the construction project. Here’s what you need to know about when you’ll be paying closing costs on a construction loan.

Before Closing Day

Closing costs on a construction loan are typically paid at two different points in time: before closing day and at the actual closing. Before closing day, you’ll be responsible for paying the fees associated with the loan application process. These fees may include the cost of a credit report, appraisal, and other third-party services that the lender requires. You’ll also need to pay for a title search to ensure that there are no liens or other issues with the property.

Depending on the lender, you may be required to pay these fees upfront or at a later date. If you pay them upfront, they will be included in the total closing costs for the loan.

At Closing

On the day of closing, you’ll be responsible for paying the remainder of the closing costs associated with your construction loan. These costs may include the loan origination fee, underwriting fee, and other administrative charges. You’ll also need to pay for any prepaid interest that has accrued since the loan was funded.

In addition to these fees, you may also be required to pay for mortgage insurance and property taxes. These charges will be prorated based on the time of year and the amount of the loan.

The Benefits of Paying Closing Costs

While the cost of closing on a construction loan can be significant, it’s important to remember that these fees are necessary to complete the financing of your project. By paying the closing costs upfront, you’ll be able to secure the funds you need to build your dream home. Additionally, paying these fees can help you avoid higher interest rates and other charges that may be associated with alternative forms of financing.

Construction Loan vs. Mortgage

When it comes to financing a new construction project, you have several options available to you. One of the most common is a construction loan. This type of loan provides the funds you need to build your home and is typically paid off once the construction is complete.

Another option is a mortgage. With a mortgage, you borrow money to purchase an existing home. While mortgages may have lower interest rates than construction loans, they may not provide the flexibility you need to complete your project on time and within budget.

The Bottom Line

Closing costs are an important aspect of any construction loan. By understanding when you’ll be responsible for paying these fees, you can better prepare for the financing of your project and avoid any surprises along the way. With the right financing in place, you can build the home of your dreams and enjoy all the benefits of homeownership for years to come.

Frequently Asked Questions

Construction loans are a popular financing option for those looking to build a new home or undertake a major renovation project. However, as with any loan, there are certain costs associated with the process. One of the most common questions asked is when do you pay closing costs on a construction loan?

What are Closing Costs?

Closing costs refer to the fees and expenses that are associated with the process of obtaining a loan. These costs can include things like appraisal fees, attorney fees, title search fees, and more. Essentially, they are the fees that are required to close the loan and officially transfer ownership of the property to the borrower.

It’s important to note that closing costs can vary depending on the lender and the specific loan being offered. Some lenders may charge higher fees, while others may offer lower fees in order to remain competitive.

When are Closing Costs Due?

Closing costs are typically due at the time of closing on the loan. This means that they will be paid at the same time that the loan funds are disbursed, and the property ownership is officially transferred to the borrower.

It’s important to be prepared for these costs and to budget accordingly. Closing costs can be significant, and failing to pay them can delay the loan process and potentially even result in the loan being cancelled.

Can Closing Costs be Rolled Into the Loan?

In some cases, it may be possible to roll the closing costs into the loan amount. This means that the borrower will not need to pay the closing costs upfront, but will instead pay them over time as part of their regular loan payments.

However, this is not always an option and will depend on the lender and the specifics of the loan being offered. It’s important to discuss this option with the lender and to fully understand the terms and conditions of the loan before agreeing to anything.

How Much are Closing Costs?

The exact amount of closing costs will vary depending on a number of factors, including the lender, the loan amount, and the specific fees being charged. Generally speaking, closing costs can range anywhere from 2-5% of the total loan amount.

It’s important to get a clear breakdown of the closing costs from the lender before agreeing to the loan so that you can be fully aware of the costs associated with the loan.

Are Closing Costs Negotiable?

Sometimes, it may be possible to negotiate the closing costs with the lender. This is especially true if you have good credit and a strong financial history. However, it’s important to keep in mind that not all lenders will be willing to negotiate, and even those that do may not be willing to budge on all fees and expenses.

If you are interested in negotiating the closing costs, it’s important to be prepared and to have a clear understanding of what you are willing to pay and what you are not. Having a good understanding of the loan and the associated costs will also be helpful in this process.

Education 101 Resale vs. New Construction: Closing Costs


In conclusion, understanding when you pay closing costs on a construction loan is crucial to avoid any confusion or unexpected expenses. Typically, these costs are paid at the closing of the loan when the construction process is completed. This includes fees for the lender, title company, and any other third-party services involved in the loan process.

It’s important to note that some lenders may offer to roll the closing costs into the overall loan amount, which can be helpful for borrowers who may not have the funds available upfront. However, this can also increase the overall cost of the loan, so it’s important to weigh the pros and cons before making a decision.

Ultimately, working with a reputable lender and being aware of all the costs associated with a construction loan can help you make informed decisions and ensure a smooth loan process. By doing your due diligence and understanding the details of your loan agreement, you can set yourself up for success and achieve your construction goals.

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