Financing to Build, Not Just Buy

A construction loan funds the building of a home rather than the purchase of an existing one. Instead of handing over the full loan amount at closing, the lender releases money in stages, called draws, as the builder finishes each phase of work: foundation, framing, roof, and so on.

The most common version for someone building a primary home is a construction-to-permanent loan, also called one-time-close. You close once, the loan covers the build, and once the home is finished it automatically converts into a standard mortgage, so there's no second closing and no second round of closing costs.

Lenders will want to see the builder's contract, the plans, and a realistic budget before approving a construction loan, and your own credit and income still matter the same way they would for any other mortgage. It's a more involved process than buying a finished home, but for someone set on building exactly what they want, it's the right tool for the job.