You've found the perfect piece of land for your dream home. 
Now, you've got to find a way to get your plans off the ground. 
Because of the risks involved in letting a builder finance home 
construction, many financial planners recommend taking out a 
special home construction loan.

You can maximize your savings by shopping for a lender that can 
provide you with a combination loan. The combination loan starts 
as a construction loan. During this phase, your lender cuts 
checks to your builder and their subcontractors as they 
successfully reach significant steps in the building process. 
Once your home nears completion, your lender activates a 
traditional mortgage. The new loan pays off your construction 
loan and rolls the remainder into the assessed value of the new 
property.

The first way a combination loan can save you money is by 
eliminating a second set of closing costs. By handling both deals 
simultaneously, you save yourself and your lenders considerable 
time and money, savings that lenders are happy to pass along in 
the form of preferred rates.

Many banks let the commercial side of their business handle 
construction loans, while the consumer division oversees the 
mortgages. Therefore, the best place for you to start your hunt 
for the best deal is with the branch manager of the banks with 
offices in your area.

Unlike traditional mortgages that can be handled over the phone 
or the Internet, construction loans require significant local 
oversight. Fortunately, commercial lenders enjoy the opportunity 
to plant more roots in their communities. In fact, the commercial 
banker handling your quote for the construction loan may be able 
to pull strings to get you a more competitive quote for your 
eventual mortgage.

When shopping for construction loans, understand that the 
commercial lender will charge a much larger administration fee 
to compensate for the step-by-step management of your building 
process. Sometimes, you can expect to pay three, four, or five 
points (percentage points of your home's value) as a fee to the 
bank. Considering the amount of work involved in communicating 
with builders and subcontractors, most administration fees 
actually pay for themselves by freeing up your own valuable time.

As an incentive to keep all of your business under the same roof, 
many banks will actually rebate much of your commercial loan's 
administration fee when the time comes to roll it over into the 
mortgage. You may receive a personal mortgage with no points, or 
you may even receive rebate points that you can apply to the 
principal.

Throughout your planning process, involve local banking 
professionals and ask your builder about positive experiences 
they have enjoyed on past projects with your contender lenders. 

Kevin Adelsberg is a writer for FDLoans.com.
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