Construction Loans: Finance Your Dream Home

Whether you’re struggling to find a home that fits your needs or you’re finally ready to build your forever home, our construction specialists will help you build your dream home on a strong foundation. With a variety of construction products, our goal is to help streamline the building process, leaving you comfortable and confident throughout the entire journey.

What is a Construction Loan?

A Construction Loan provides short-term financing to cover the costs of building a home. During the construction phase, buyers will pay interest only on the amount disbursed to the builder. 

Construction to Permanent loans allow homeowners to secure financing for both the construction of their home and their permanent mortgage, all in a single loan. This means that once the construction period ends, the loan is then converted to a traditional mortgage, and loan terms are determined prior to the construction close. Buyers will still pay interest only during the construction period. Construction to Permanent financing allows buyers to work with one lender from start to finish, helping to save them both time and paperwork. 

We offer* two types of Construction to Permanent Loans to best fit your individual needs, a “One-time Close” and “Two-time Close”. 

A One-time Close Construction to Permanent Loan offers qualified buyers:

• One closing, which means there’s reduced closing costs and you can close with one application.
• An interest rate that is locked in prior to the construction closing and remains the same throughout the loan.

• The flexibility to change the features of the loan at the end of construction.
• Two sets of closing costs, which requires two applications.
• A permanent mortgage rate that is not typically locked until 60 days prior to the home’s completion.

Do I have to put 20% down on a construction loan?

Not always. While many lenders prefer a 20% down payment for construction loans, the exact amount can vary by lender, loan program, property type, and your financial profile. Some borrowers may qualify with a lower down payment if they have strong credit, solid income, and detailed construction plans, while others may be asked to put down more than 20% to offset higher risk.

It’s important to speak with lenders early in the process to understand their specific requirements, including minimum down payment, interest-only periods during construction, and how the loan will convert to a permanent mortgage once the home is completed.

Understanding the Approval Process

The application and approval process for construction loans is often more detailed and demanding than that of a traditional mortgage or standard home loan. Because construction financing involves funding a home that does not yet exist, lenders usually impose stricter requirements to reduce risk. For instance, construction loans typically call for a larger down payment, good to excellent credit, a lower debt-to-income ratio, and they often come with higher, variable interest rates than conventional mortgage loans. In addition, we must verify that you have at least 15% contingency funds available on top of your down payment and closing costs to cover unexpected construction expenses or cost overruns.

Why is this necessary? If you default on your construction loan before the home is completed, there is no fully built property to repossess and resell, which makes construction lending inherently riskier for banks and mortgage lenders. These stricter construction loan requirements help protect both you and the lender by ensuring the project is financially feasible and that you have sufficient reserves to see the build through to completion.

Along with your construction loan application, your lender may require a copy of the deed to the land (or a fully executed contract for the purchase of the land if you don’t own it yet), a signed contract with a licensed builder, complete builder information, detailed architectural plans and specifications for the home, a certificate of liability insurance for the builder, and a builder’s risk or homeowner’s insurance policy. Your builder must also be vetted and approved by your lender to ensure they meet the lender’s construction and credit standards. If a builder has not been vetted previously, additional documentation, such as references, financial statements, licenses, and proof of insurance, must be submitted for review and approval before your construction loan can close and funds can be disbursed.

How does the builder get paid?

Construction loans also differ from traditional mortgages in how funds are distributed. With construction loans, builders are paid through a series of “draws” throughout the construction process. Construction drawings require a site visit or progress inspection by an approved inspector. 

Benefits to buying a newly built home:

• Customization. Many builders collaborate closely with buyers to tailor finishes, fixtures, and even certain layout elements to match their personal style and daily routine. Picture moving into a home that already reflects your taste, with your preferred flooring, cabinetry, and color palette in place. Because everything is brand new, you can skip the long list of weekend projects and start enjoying your home from day one.
• Modern floor plan. New construction typically offers the open, flowing layouts that today’s buyers prefer—spacious great rooms, eat-in kitchens, generous islands, and ample storage. You’re more likely to find features such as walk-in closets, spa-like primary suites, and larger secondary bedrooms with abundant natural light. These thoughtfully designed floor plans are ideal for both everyday living and entertaining.
• Energy-efficient. Most newly built homes are designed with efficiency in mind, from advanced insulation and tightly sealed windows and doors to high-performance HVAC systems. This helps keep heated and cooled air inside, reducing energy waste and monthly utility bills. New homes also tend to include energy-saving appliances—such as efficient refrigerators, dishwashers, washers, dryers, water heaters, and furnaces—that further lower operating costs and environmental impact.
• Low maintenance. Because everything in a new home is fresh—from the roof and siding to the plumbing and electrical systems—you can expect fewer repairs and less upkeep in the early years. There’s no need to replace worn carpet, update old fixtures, or worry about aging mechanicals. Many builders also provide comprehensive warranties on major components, giving you added peace of mind and reducing unexpected expenses.
• Safety and technology features. Newly constructed homes are built to current safety codes and often include enhanced features such as hard-wired smoke and carbon monoxide detectors, modern electrical systems, and garage doors with updated sensors. Builders frequently use low- or zero-VOC paints and materials, which can help improve indoor air quality. In addition, many new homes come pre-wired for high-speed internet, smart thermostats, security systems, and integrated audio or entertainment setups, making it easy to stay connected and secure.
• Stronger resale appeal. Because new homes incorporate modern design, current building codes, and up-to-date systems, they often remain attractive to future buyers for years to come. Features like open-concept living, energy-efficient components, and contemporary finishes can help your home stand out in the market and potentially support a stronger resale value when it’s time to move on.
• Healthier, more comfortable living. Improved insulation, better windows, and advanced ventilation systems can create a more consistent indoor temperature and reduce drafts and noise from outside. Combined with newer construction materials and better moisture control, these features can contribute to a more comfortable, healthier indoor environment for you and your family.