Home Construction Loan Options in Wisconsin & Minnesota

Home Construction Loan Features

At Forward Bank, we offer competitive rates and home construction loan options for building your dream home in Wisconsin and Minnesota. Our construction loans provide financing for the construction phase only, with the ability to refinance into a fixed-rate or adjustable-rate mortgage once construction is complete.

How Does a Home Construction Loan Work?

A home construction loan is a type of financing used to build a new home rather than purchase an existing one. Unlike a traditional mortgage, which provides the full loan amount at closing, a construction mortgage releases funds gradually as construction progresses.

• Planning and Loan Approval: Before construction begins, lenders review building plans, a detailed construction budget, and the project timeline. This process helps determine the total loan amount and ensures the scope of the project is clearly defined before funds are issued.
• Construction Phase and Draw Schedule: During construction, loan funds are distributed through a draw schedule. Each draw corresponds to a specific stage of the build—such as foundation, framing, or mechanical systems. Before each draw is released, inspections are typically completed to confirm the work has been finished according to plan.
• Interest-Only Payments During Construction: While the home is being built, borrowers usually make interest-only payments on the amount of money that has been drawn. Because funds are released in stages, payments increase gradually as construction progresses rather than starting at the full loan amount.
• Completion and Mortgage Transition: Once construction is finished and the home is ready for occupancy, the loan moves out of the construction phase and requires separate long-term financing. At that point, regular principal and interest payments begin.

Understanding how a construction loan works helps borrowers plan for costs, timelines, and payment expectations throughout the building process.

Construction-Only Loans

A construction-only loan finances only the building phase of a new home. This type of loan is designed to cover construction costs from the start of the project through completion and does not convert into a permanent mortgage.

During construction, funds are released in stages based on the progress of the build, rather than provided as a lump sum at closing. Borrowers make interest-only payments on the amount drawn while the home is under construction.

Key characteristics include:

• Financing limited to the construction period: The loan covers construction costs only and typically has a short-term duration aligned with the build timeline.
• Separate long-term financing required after completion: Once construction is finished and the home is ready for occupancy, borrowers must obtain a second loan or refinance into a permanent mortgage, such as a fixed-rate or adjustable-rate loan.
• Two closings and potentially higher overall costs: Because the construction loan and the permanent mortgage are separate, borrowers should plan for two closings, which may result in additional fees compared to a single-close option.
• Opportunity to choose mortgage terms after the home is built: While the construction loan itself offers limited flexibility, this option allows borrowers to shop for mortgage rates and terms once construction is complete, based on their financial situation at that time.

A construction-only loan can be a good fit for borrowers who prefer to finalize their long-term mortgage after the home is finished and ready for move-in.

Moving Homeowners Forward

Getting started with a home construction loan is easier with guidance from local mortgage lenders who understand the building process in Wisconsin and Minnesota. From choosing the right construction financing to coordinating loan disbursements as your home is built, our team is here to support you at every stage. We help simplify construction mortgages so you can stay focused on bringing your new home to life.