Construction Loans: Finance Your Custom Home Build

You apply before construction begins — before anything is built. The lender reviews your income, credit, and down payment, plus your builder's license, insurance, and fixed-price contract. The loan is approved based on the "as-completed" appraised value of the future home.

The lender doesn't release the full loan amount at once. Funds are disbursed in stages — called draws — as each phase of construction is completed and inspected. Common draw milestones: foundation, framing, mechanical rough-in, drywall, and final completion.

During construction you pay interest only on the amount drawn so far, not the full loan balance. Payments start small and grow as more funds are released. The construction period is typically 6–12 months depending on the program and lender.

When construction is complete and a final inspection passes, the loan converts to a standard permanent mortgage — usually a 30-year fixed. With a single-close (one-time close) loan this happens automatically with no second closing, no second appraisal, and no second underwriting.

The builder already constructed the home at their own expense. You buy it finished (or nearly finished) with a standard purchase mortgage — FHA, VA, USDA, or conventional. No construction loan needed.

You pick a floor plan from the builder's catalog before construction starts. The builder finances the build themselves. You get a standard mortgage at closing when the home is complete. Still no construction loan on your end typically.

You own (or are buying) land, you hire a builder, and they build to your specs. You finance the construction yourself with a construction loan. Maximum customization, more process. This is where USDA, FHA, and conventional construction loans apply.