You can’t get a construction loan on a project that has been started. The reason for this is that the previous contractors (in your case friends and relatives) can place a lien on the property for non-payment. The lender can’t risk this so it’s not something they will lend on. You will want to first find somebody that still does construction loans (many companies stopped doing them recently) and they will want plans, estimates, appraisal (which they will order). Once they approve the loan they will pay off the $46,000 so that they are in first position. They will disburse monies for materials and labor as it is billed. Meanwhile, you pay only on the money used rather than the full amount. Once construction is done you will need to refinance that loan into a permanent 30-year type loan.

Actually the insurance money if any will go toward the mortgage, and the bank will get it.

As long as you make payments the bank may go with you. but they will still hold mortgage to your house as it is on the property they hold the mortgage.

Building without additional loan is good.. Have done that and live in a great house that we designed and did almost all the work… Good luck