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Should I build or should I buy? It’s a common question many people ask themselves when making the big decision to move on to a new home. While this may seem like a difficult question, your financial fitness and a Community State Bank Mortgage Lender may be able to provide you with an answer.

Michael Fohey, Community State Bank VP — Mortgage Lending Manager, offers up his insight in this Q&A. Michael delves into home building and explains how you can determine your financial readiness before you make the big decision to build.

Q: What are the different areas of a customer’s financial background that are taken into account when applying for a construction loan?

A: Construction loans are very similar in thought process to a purchase transaction. It boils down to income, assets for down payment and long-term affordability. CSB will do construction loans with as little as 5% down, but we do advise customers have an adequate amount of reserve funds available. A home construction often runs into miscellaneous expenses throughout or at the end of the process, such as landscaping, driveway, furniture and window treatments.

Q: What is the average price range that people spend when building a home?

A: A typical home construction project is comprised of land value and construction cost. The general breakdown within those categories is 20-30% towards the cost of the land and 70-80% towards the cost of construction.

For example, a $50,000 lot and a $200,000 cost of construction equals a total project cost of $250,000. Oftentimes, we do construction loans on land borrowers already own. If the land is already purchased, it might even qualify as a down payment, meaning no additional out-of-pocket money is required. The appraised value, subject to completion, will be the determining factor.

Q: What areas need to be accounted for when building a home?

A: A home construction project begins as a hole in the ground, followed by finished floors and, ultimately, interior fixtures (lighting, plumbing, etc.). In addition to customers picking a suitable banker, I would highly recommend picking a builder with whom they feel comfortable. Their builder, along with our mortgage lending team, will be their main support throughout the process and decision making. The construction process can be overwhelming if customers don’t have a good builder or banker to rely on for advice.

Q: How can I determine the right amount of home to afford?

A: This question is best answered in two parts. Borrowers should pre-qualify for a loan amount that’s affordable and comfortable for them. The second part is equally, if not more important, and requires the borrower to really choose what they ultimately want their home to look like. Is it a two-story or a ranch? Do they want a walkout basement? How many bedrooms? What type of design are they wanting?

Borrowers should see if their desired house can be accomplished within their budget. The land they choose to build on should be based on the style and size of the desired home. If the land is already owned, a good builder will be able to help design or select a style of house that will fit the property best.

Q: What truly determines your financial fitness or readiness for building a home?

A: A borrower’s financial readiness involves pre-qualifying for long-term payment affordability. There are several areas borrowers should review, including confirming sufficient assets in checking, savings and investment accounts and having available the funds after construction.

There are other considerations for newer homes, including, but not limited to, furniture, landscaping and installing a driveway. These are all important factors to remember when determining financial readiness for new home construction.

As your Mortgage Lender, we’re happy to discuss each of these areas with you throughout the pre-qualification process. If you ever have any questions, please reach out to one of our CSB Mortgage Lenders. We’ll be happy to buy you a cup of coffee and discuss your mortgage needs anytime!

The staff within Community State Bank’s Mortgage Center bring a wealth of experience and can assist you with your needs. Michael Fohey (NMLS #718442), Mortgage Lending Manager; Kim Terpstra (NMLS #776940), Mortgage Lending Officer; and Kevin Jorgensen (NMLS #1666771), Mortgage Lending Specialist are ready to help. You can call them at 262-878-3763 or visit to get started.

Community State Bank is an Equal Housing Lender and Member FDIC.

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