This question is a very popular one these days. :) Although still low, interest rates are on the rise again. You could always lock in now with a float down option. That way if rates go down, you can get the new lower rate. There are usually fees associated with this (you may pay a half a point or something) but could save thousands in the end. We refi'd our new house (and locked in two months ago). I got my rate on the LAST DAY it was that low (4.75 fixed 30-yr). Sixty days later, rates are hovering in the mid 5's. With rates this volatile, I wouldn't chance what they COULD be at the end of your construction period over a year from now. HTH

Lucy, my Mom listed her house in a small town in MN (even smaller than yours), so I've been looking at the RE listings in her area. I know exactly what you mean about slim pickings! Mom listed at $165K, and there are hardly any listings near that price. There are old/tiny houses for less than $100K, and there are lake properties for $300K+. I suggest you do one of two things: either keep renting, and save as much as you can (dump your car and student loan amounts into savings), or change your expectations. You might not find your dream house in your community right away, but can you find a house you could live with for 5 years? Another possibility is to buy property, but wait to build. If the property is paid for, it counts as equity when you go to build.

Another thing to keep in mind is that there will be 'cash' outlays, possibly during but definitely after the build. Depending on your contracts, you may pay separately for site clearing, tree/stump removal, driveway finishing (such as concrete/brick/aggregate to smooth out the ruts), retaining walls, overage on earthmoving (such as digging the foundation or shoving dirt for the driveway), wells/septic fields, fencing, insurances, handling fees [bank], landscaping, exterior finishes, drapes and blinds, and... more. Applying 33% of the expected cost towards the loan is good, but many times you will need another 25+% to cover all the stuff that isn't/won't be in the mortgage contract. Go on-line and learn the definitions and usages of terms such as ARM, discount, points, and amortization... all the jargonese to do with loans. You don't want to have a blank stare when the lender starts using those words. After you are comfortable with those terms, then do as dixiedoodle says, sit down and go over the figures - in detail -- with several different banks/loan institutions. This doesn't waste their time because you are showing responsibility in wanting to understand all the possibilities. BTW, get their figures in writing -- a mathematician or a loan officer might remember who quoted how much for what for how long after listening to a half-dozen different presentations, but the rest of us need to have hardcopy to study later. Be very aware that rates they quote for today may change tomorrow, but you will gain a feeling for the institution's attitude when it does its business, and how good its rates are when compared to others. As also said, a mortgage is an option to borrow [up to a certain amount], it's not cash into your hand. However, you will be expected to pay -with interest- all the monies that are disbursed to the various contractors and suppliers. The interest paid plus the assorted fees are how the bank makes its money... study carefully to see what is to be paid, and when, and how the interest is computed and on what and when. And keep in mind that interest compounds... every dollar you borrow is going cost you from three to twenty times as much to pay back.

If the amount of your loan remains the same, and interest rates go up, if your rate goes up (and usually rates on Home Equity Loans are at variable rate) ... ... if the amount of your regular payment remains the same ... ... the duration of time during which you'll be paying it will be extended for a substantial number of years! As someone suggested, can you arrange for your mortgage amount to be available in portions, at various times, as needed? ole joyful