Thinking about building your next home in East Lansing or around Ingham County and wondering how to pay for it? You are not alone. Construction financing looks and feels different from a traditional mortgage, and understanding the differences can save you time, money, and stress during the build. In this guide, you will learn how construction loans work, how they compare to standard mortgages, what to expect locally with permits and inspections, and how to choose the right path for your project. Let’s dive in.
What makes construction loans different
A construction loan is designed to fund a home that does not exist yet. Because the lender is financing work in progress, the rules are not the same as a mortgage for an existing house.
Short term, interest only during the build
Construction loans are short term. During construction you usually make interest-only payments on the amount that has been disbursed so far. Principal and full mortgage payments begin after the home is complete and your loan converts to permanent financing.
Draws tied to milestones, not a lump sum
Instead of one payout at closing, funds are released in stages called draws. Each draw lines up with construction milestones like foundation, framing, rough-ins, and finishes. Lenders verify work through inspections before releasing funds to your builder or title company.
More documentation and oversight
Lenders look for a signed builder contract with line-item costs, architectural plans and specs, a project schedule, and proof that your builder is qualified and insured. You will also see a specialized appraisal that values the finished home based on your plans and comparable sales.
Two paths: one-time close vs two-close
Construction financing usually follows one of two structures. Your choice affects costs, rate risk, and paperwork.
Construction-to-permanent (one-time close)
With a one-time close, you have one loan that funds construction, then converts to a regular mortgage when the home is complete. You typically pay one set of closing costs. Some lenders let you lock the permanent interest rate at the start, while others set it at conversion.
Construction-only (two-close)
With a two-close setup, you use a short-term construction loan during the build, then apply for a new permanent mortgage after completion. This means two closings and two sets of closing costs. You may need to re-qualify for the permanent loan, and the permanent interest rate will be whatever is available when you apply.
Local steps in East Lansing and Ingham County
Building in Greater Lansing comes with city and county steps that tie directly to your loan draws and your final conversion to a mortgage.
Permits and inspections in East Lansing
The City of East Lansing requires building permits, plan review, and sequential inspections that align with Michigan’s residential building codes. You can expect inspections at footing and foundation, framing, mechanical systems, insulation, and final completion. You will need a Certificate of Occupancy before anyone can move in. Lenders often require the Certificate of Occupancy or satisfactory final inspections before converting to permanent financing.
Site and utilities in the county
If your lot is on city sewer, septic is not part of your process. For homes on parcels outside municipal sewer service in Ingham County, you may need septic permits, soil percolation tests, and environmental health approvals. Well permits and rural utility rules can also apply. Plan ahead so these items do not slow down your draw schedule.
Builder qualifications and code compliance
Michigan enforces state construction codes. Lenders commonly verify your builder’s experience, insurance, and licensing where required. Expect your lender to ask for a builder profile, references, and proof of insurance. These checks protect you, your title, and the lender.
How lenders structure your loan
Construction loans add a layer of project management to traditional underwriting.
Underwriting and appraisal
You will provide standard financial documentation, plus lot information, signed contracts, plans and specs, and a line-item budget. The appraisal values the finished home based on your plans and comparable sales. If you already own your lot, your equity in the land may count toward your down payment.
Draw schedule and retainage
Draws are released as the work progresses. A typical sequence includes foundation, framing and roof, rough-ins, drywall, finishes, and final completion. Each draw usually requires an inspection and lien waivers. Many lenders hold a small retainage until the project is complete and all liens are released.
Payments, rates, and rate locks
During construction you pay interest only on the amount disbursed. Rates on construction loans are often higher than standard mortgage rates. With a one-time close, you may be able to lock your long-term rate upfront. With a two-close, your permanent rate is set when you apply for the final mortgage.
Converting to permanent financing
When the home is complete, the loan converts to a long-term mortgage in a one-time close, or you refinance into a permanent mortgage in a two-close. Lenders generally require a final inspection or appraisal, lien releases, and a Certificate of Occupancy.
Timelines and sample draw schedule
Every project is different, but most single-family builds in Mid-Michigan follow a sequence like this:
- Pre-construction: planning, permits, financing, and selections, about 1 to 3 months or more
- Site work and foundation: about 2 to 6 weeks
- Framing and shell: about 2 to 8 weeks
- Rough-ins for electrical, plumbing, and HVAC: about 2 to 6 weeks
- Insulation and drywall: about 2 to 6 weeks
- Finish work such as flooring, cabinets, paint, and trim: about 4 to 12 weeks
- Final inspections, punch list, and Certificate of Occupancy: about 1 to 4 weeks
A common draw pattern looks like this, with exact percentages set by your lender and contract:
- Draw 1: Lot purchase and mobilization
- Draw 2: Foundation complete
- Draw 3: Framing and exterior shell with roof
- Draw 4: Rough-ins completed
- Draw 5: Insulation and drywall
- Draw 6: Interior finishes and fixtures
- Final: Completion and Certificate of Occupancy, minus retainage as required
Costs to plan for
Budget beyond materials and labor so your financing stays on track.
- Financing costs: construction loan origination, a specialized appraisal, inspection fees per draw, title and recording, and interest during the build
- Municipal costs: building permits, plan review, utility hookups, and any impact fees that apply locally
- Soft costs: architectural and engineering, surveys, soils testing as needed, insurance, and builder warranty
- Contingency: a reserve to handle change orders or overruns, often set aside in the loan or your own funds
Risks and how to manage them
Construction is a coordinated process. Planning and transparency reduce risk.
- Cost overruns: use a fixed-price or guaranteed maximum price contract when possible, and include contingency funds
- Delays: build a realistic schedule, consider weather and supply timelines, and coordinate inspections early
- Interest rate risk: a one-time close with a rate lock can reduce risk, while a two-close leaves the permanent rate to market timing
- Builder performance: choose an experienced builder with references, clear contracts, and insurance; require lien waivers at each draw
- Title protection: maintain title insurance, surveys, and lien-release procedures throughout
Quick checklist to get started in Mid-Michigan
- Interview and select a qualified builder, then secure a detailed contract with line-item costs
- Finalize plans and specifications and confirm your proposed schedule
- Check East Lansing zoning for setbacks, lot coverage, and any design or neighborhood reviews
- Verify sewer connection, or start septic and well approvals with Ingham County if the parcel is outside city service
- Gather your financial documentation and lot deed or purchase agreement
- Meet with local lenders to compare construction-to-permanent and two-close options, rates, fees, and rate-lock policies
Which option is right for you?
If you want one closing and predictability, a construction-to-permanent loan can simplify your path. You may be able to lock your long-term rate and reduce duplicate fees. If you prefer to shop permanent rates at the end or your builder and lender have separate requirements, a construction-only loan may fit better. Just plan for a second closing and the possibility of re-qualifying for the permanent mortgage.
Consider your timeline, rate environment, and comfort with paperwork. Align the loan structure with your builder’s contract, your cash flow during the build, and your goals for the final mortgage.
Final thoughts and next steps
Building in East Lansing or around Ingham County gives you the freedom to tailor a home to your life. The right financing makes that experience smoother, from your first draw to your Certificate of Occupancy and final mortgage. If you want construction-aware guidance that connects site selection, plan decisions, permitting, and financing, partner with a team that speaks both building and brokerage.
Ready to compare construction-to-perm and two-close options, or want help mapping your draw schedule to the East Lansing inspection sequence? Let me lead you home with Giguere Estates.
FAQs
What is the main difference between a construction loan and a mortgage?
- A construction loan is short term and funds the build in stages with interest-only payments, while a mortgage is a long-term loan for a completed home with principal and interest payments.
How do construction loan draws work in East Lansing?
- The lender releases funds at milestones like foundation, framing, and finishes after inspections and lien waivers, aligning with the city’s required inspection schedule.
Can I lock my mortgage rate when I start construction in Mid-Michigan?
- Some one-time close lenders allow a permanent rate lock at closing, while others set the rate at conversion, so confirm policies and any fees with your lender.
What inspections are required before I can move in?
- East Lansing requires sequential inspections during construction and a final inspection that leads to a Certificate of Occupancy, which lenders often require for conversion.
Do I need septic permits for a new build in Ingham County?
- If your lot is outside municipal sewer service, you may need septic permits, soil testing, and health department approvals; lots on city sewer typically do not require septic permits.
What documents will my lender require for a construction loan?
- Expect a builder contract with line-item costs, plans and specifications, a project schedule, proof of builder insurance and qualifications, and an appraisal based on the proposed construction.
What happens if costs go over budget during my build?
- You are generally responsible for overruns, so include a contingency reserve and discuss change-order procedures and funding with your lender and builder upfront.
Will I have two closings if I build in East Lansing?
- With a construction-to-permanent loan you typically have one closing, while a construction-only loan requires a second closing when you secure the permanent mortgage.
