Do You Make Payments During Construction? (Michigan Construction Loan Guide)
If you’re thinking about building a home, one of the most common (and important) questions is:
“Do you make payments during construction?”
Yes — but they’re usually different from a traditional mortgage payment.
Understanding how this works can help you plan your budget and avoid surprises during the building process.
How Construction Loan Payments Work
Unlike a traditional mortgage — where you receive the full loan upfront — construction loans work in stages, called draws.
Instead of paying a full mortgage right away, you typically:
Only make interest payments on the amount that has been used so far
This is called an interest-only payment structure.
What Is a “Draw” in a Construction Loan?
A draw is when funds are released to your builder as the project progresses.
Typical stages might include:
- Foundation completed
- Framing
- Roofing and exterior
- Mechanical systems (plumbing, electrical, HVAC)
- Interior finishes
As each phase is completed, the lender releases funds — and your loan balance increases gradually.
Why This Structure Helps You
This setup is designed to make building more manageable.
Benefits include:
✔ Lower payments early in the project
✔ Payments that gradually increase
✔ You’re not paying interest on money you haven’t used yet
For many homeowners, this makes construction financing more flexible than expected.
When Do Full Mortgage Payments Start?
Once construction is complete, your loan either converts to a traditional loan or is refinanced into a fixed mortgage.
At that point:
You begin making full principal + interest payments
This is similar to a standard home loan.
What About Taxes and Insurance During Construction?
This can vary depending on your loan structure.
In many cases:
- Property taxes may be minimal during construction
- Builder’s risk insurance is required
- Some loans include escrows for taxes and insurance
We’ll walk through this with you so there are no surprises.
What If I’m Paying Rent While Building?
This is one of the biggest planning considerations.
Many homeowners are:
- Paying rent or an existing mortgage
- While also making construction loan payments
Even though construction payments are lower early on, it’s important to:
Plan for overlapping housing costs
We help you map this out ahead of time so it fits your budget comfortably.
Michigan-Specific Considerations
Building in Michigan adds a few unique factors:
- Winter weather can slow progress
- Construction timelines may vary seasonally
- Rural builds may include well/septic costs in draws
This can affect both your timeline and your payment schedule.
The Biggest Misconception
Many people assume:
“I won’t have to make any payments until the house is done.”
That’s usually not the case.
You will typically make interest-only payments during construction — but they are often lower than a full mortgage payment at the beginning.
Yes — you do make payments during construction.
But instead of a full mortgage, you’ll typically:
✔ Make interest-only payments
✔ Pay based on funds used (draws)
✔ See payments increase gradually over time
This structure is designed to make building more manageable…
…that’s where we come in!
If you’re trying to decide between building or buying, let’s walk through it together.
We’ll help you:
- Get prequalified
- Estimate your true monthly payment
- Review construction loan options
- Build a clear plan before you move forward
Call us at 616-465-5725; Email us at hello@jpalmortgage.com
Or fill out a contact form here: Let’s Connect!
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