Here's a dumb question. As far as repaying a construction loan, does the repayment begin after the house is complete or as soon as the bank starts lending money? If it's the latter, it seems like one would start with a relatively small payment which would increase as more of the loan is shelled out for the house.
As soon as the bank starts lending. But you are only paying for what they have lent to date.
For every loan I have ever taken, the repayment plan begins as soon as the money is handed over (probably with a 30 or 60 day delay). The first payment date should be specified in the loan agreement, but you can talk to your lender to find out the details. If I were a bank, I would be reluctant to agree to not accepting money until the project is complete -- besides just normal construction delays, you could end up with an unscrupulous borrower whose project is never complete.
If you have the option, I would take out only as much money as you actually need. I have done with with home equity loans. As I need the money, I draw it out, thus minimizing the interest exposure. Otherwise, you will have a fattened bank account that loses money every month.
I am in the middle of that exact situation. Wells Fargo found our construction loan bank, Normandy. They give you the $ to build. 8.25% interest. Once we get our certificate of occupancy and have received all our $$ from Normandy, Wells Fargo takes over the loan as the mortgage. Normandy gave us 12 mos to complete the house. We are at 18 mos and just about finished. We are currently "in default" with them since its past the 12 mos. Jan payment will be based on 15.75%. It really sucks, I suggest NOT getting a construction loan unless you can get it for more than 12 mos. We built it ourselves..nites and weekends and we just over estimated our log home building skills.. :)hope this helps.
An incentive to include a completion deadline in the contract with a reward/penalty for early completion/late completion.