Q. My wife and I were fortunate enough to receive a 12 acre parcel of land worth an estimated $200,000 from a family member. We are currently looking for a lender that will provide us with a $175,000 construction loan that will morph into a 30-year, fixed-rate mortgage. This is our first home and we are looking for some practical information about obtaining such a loan. What are the expenses we should expect to pay? We would also like to know what are some invalid expenses that we may be asked to pay.

A. What you need is a single-close loan, which is made up of two loans, as you mentioned.

Your first loan will be a short-term $175,000 construction loan, which is usually an interest-only loan, with the money paid out to the contractors on an as-needed basis. That means you don't have to pay interest on money before it is used. Construction loans are generally pegged to the prime rate, which is 5.25% right now. Look for a bank charging "1% less than prime."

You can usually include fees for the architect and designer, clearing the land to prepare for construction, obtaining utilities, preparing the foundation, permit fees, and so forth. Or you can choose to pay some separately, such as the bill from your architect. Some people just don't want to stretch that repayment out over 30 years. Your choice.

As far as obtaining the loan, it isn't that different from getting a regular home mortgage. Your requirements in terms of income, debt load and creditworthiness are the same as if you were just simply buying a home. But you have to go into the loan having done your homework. It sounds like you have, however, since you have come up with a $175,000 figure, which should include the cost of plans, permits, inspections, materials and labor.

Once construction is complete and you get your "permit of occupancy," the loan will "morph" into your primary mortgage on whatever terms you designate, e.g., a 30-year fixed or a 5-year adjustable.

Using a single-close loan, you only have one set of closing costs and one mortgage payment. This type of loan is very common and any lender will be able to fill you in on the details of such a mortgage.

You might also be allowed to lock in a rate on your mortgage when you get your construction loan. Rates are pretty good right now, but they are not expected to go much higher. Choosing a rate is always a gamble, but if the possibility of a higher rate at the time of closing would be a financial hardship, you might consider locking in early.

Many lenders will charge points (one point equals 1% of the total loan) on the construction loan, and then some of those points will be transferred to the permanent loan. Each lender is a little bit different so it is difficult to compare what you really paying.

It is also suggested that you build in about an extra 10% contingency fund into the construction loan, as homeowners often want to make changes during construction. If there is no "extra," those changes have to come out of the homeowners' pockets. And speaking of contingencies, if construction is scheduled for six months, you need to get some extra time built into it to take into account bad weather, materials shortages or permit problems.

As with any loan, you should shop around and get two or three quotes rather than signing on with the first lender you see. Be sure that each charge is explained thoroughly and don't be afraid to ask questions.