Mortgage/construction loan question

My son owns a residential lot. He will have an ICF (insulated concrete foam) house - not sure if this is germane to my question. It’s not an uncommon alternative construction technique, very sturdy and energy efficient.
The builder recommended a bank for his construction loan. The loan officer explained their SOP was to loan him the money for construction, then shop the note after completion. If no one bought it, they would write an ARM loan.
Is this common? I hate the adjustable rate, if nothing else.

Yes this is common.

Both my son & my brother had to do this when they built their homes with “alternative construction techniques”. One was a straw bale home & the other was stick built using reclaimed lumber & hardware. Interestingly, to me at least, the hardest one to finance was NOT the straw bale home.

Banks often shop your mortgage, regardless of whether you build the house new or not. If they could shop the loan during construction, they probably would.

I assume your brick built house had no problems with financing?

Yeah, but the “If no one will buy it, it will become an ARM” condition seems pretty unusual.

Sounds right from what I’ve heard. The bank will consider the mortgage risky, they don’t know what the house will be worth when it’s done, they may offer a conventional mortgage once the work is completed and can be appraised but they don’t want to promise much up front.

When I built my house, the bank which issued the construction loan converted it to a conventional loan after the house was completed. It was handled exactly like a new purchase loan. New house had to be appraised etc. I may not have had to do all of the documentation again. No mention of an ARM. IME, a finished structure should be worth more than a construction loan making a conventional loan the usual option.