Financing
How to Finance a Custom Home Build
Construction loans, draw schedules, and the path from financing your build to a permanent mortgage, explained in plain English.
Financing a custom build works differently from buying an existing home. Instead of one mortgage, you're typically funding construction in stages, then converting to a permanent loan. Here's how it works.
Construction loans vs. construction-to-permanent
A standalone construction loan funds the build, then you refinance into a mortgage when it's done. That means two closings and two sets of closing costs.
A construction-to-permanent ("one-time close") loan rolls both into a single loan that converts to a mortgage at completion. It usually saves on closing costs and is the more common choice today.
How draw schedules work
Construction loans don't hand over the full amount up front. The lender releases funds in "draws" as the build hits milestones like foundation, framing, and dry-in.
An inspector typically verifies each stage before the draw is released, and you usually pay interest only on the amount drawn so far during construction.
What lenders look for
Construction lending is more involved than a standard mortgage. Expect lenders to want:
- A larger down payment (often 20–25%)
- Detailed plans, specs, and a fixed builder contract
- An approved, licensed builder with a track record
- An appraisal based on the finished home's projected value
Frequently asked questions
Construction loans typically require 20–25% down, more than a conventional mortgage, because the lender is taking on more risk during the build.
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