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Construction loans.
Financing a house that does not exist yet. The money is released to the builder in stages as the work gets done, not all at once at closing.
Building from the ground up
How a construction loan is different
An ordinary mortgage funds a finished house on one day. A construction loan funds a plan. There is no completed property to appraise, so the loan is underwritten against the plans, the specifications, the builder’s contract and an appraiser’s opinion of what the finished house will be worth.
Money then leaves in draws. The lender releases a portion as each stage is completed and inspected: foundation, framing, mechanicals, drywall, finish. An inspector confirms the work before each release, which protects you as much as it protects the lender.
One-close and two-close
- One-time close, sometimes called construction-to-permanent. One closing, one set of closing costs. When the house is finished the loan converts to permanent financing without a second transaction.
- Two-close. A short-term construction loan first, then a separate mortgage when the house is done. Two closings, but it can open up options at the permanent stage.
Builder construction
If you are buying a spec home or a to-be-built house from a production builder, the builder often carries the construction risk and you close on a finished house like any other purchase. That is a different transaction from financing your own build on your own lot, and it is worth being clear which one you are in before you shop for a loan.
What you will need
A licensed, insured builder the lender can approve. A signed construction contract with a fixed scope. Plans and specifications. A line-item budget. Proof you own the lot or a contract to buy it. Expect the builder to be underwritten alongside you, because a build fails far more often on the builder than on the borrower.
Questions people ask
Can I be my own builder?
Rarely. Most programs require a licensed general contractor. Owner-builder programs exist and they are narrow, so ask before you plan around one.
What if the build runs over budget?
Overages come out of pocket unless the loan was structured with a contingency line. Ask for one. Builds run over more often than they run under.
Do I already need the land?
Not necessarily. Lot acquisition can often be rolled into the construction loan. If you are buying raw ground with no build scheduled yet, that is a land loan instead.
Program availability varies by state, by builder and by project. A licensed loan officer will confirm what is available for your situation.
Find out what you qualify for.
A licensed loan officer reviews what you send and tells you where you stand, in writing. No cost, and no obligation to go further.