There are very big consequences to selecting the wrong type of construction financing. At minimum, the wrong financing package can cost you several thousand dollars in extra closing costs.
Closing costs have to be paid in cash.
Regardless of the type of financing, lenders will insist that you must first be able to qualify for the permanent loan. They're fine for builders who will be selling the house after it's constructed, but they're a bit risky for you because you will then have to seek your permanent mortgage elsewhere. Construction-only loans also more expensive in the long run because you will have to pay extra closing costs. These loans must be paid off in full when construction is complete, and usually within 12 months or so even if construction is not complete. It's important that these two separate loans be treated as a package.