What to Know Before You Start a New Construction Loan
Building your dream home is one of the most exciting journeys you can take as a homeowner—but it’s also one that requires careful planning and the right financing. A new construction loan helps turn your blueprint into reality, funding each phase of the build from foundation to finish. Before you start, here’s what you should know about how these loans work and how to make the process smooth and stress-free.
What Is a New Construction Loan?
A construction loan is a short-term loan that covers the cost of building a new home. Instead of receiving all the funds upfront, money is distributed in stages—called “draws”—as construction progresses. Once your home is complete, the loan typically converts into a traditional mortgage, also known as a permanent loan.
Types of Construction Loans
There are two main types of construction loans:
One-Time Close: Combines the construction and permanent financing into a single loan, with one application and one closing.
Two-Time Close: Involves separate loans for construction and the mortgage, which can give you more flexibility in timing and structure.
Your lender will help you decide which approach makes the most sense based on your budget, goals, and builder’s timeline.
How the Process Works
Consultation & Pre-Approval – You’ll discuss your plans, budget, and desired location with your lender and get pre-approved before breaking ground.
Builder Review & Project Evaluation – The lender reviews your builder’s credentials, plans, and cost estimates to ensure everything aligns.
Draw Schedule Setup – Funds are released in phases as the project reaches specific milestones, such as foundation, framing, and completion.
Interest-Only Payments During Construction – You’ll only pay interest on the funds disbursed until the home is complete.
Final Conversion – Once your home is finished, your loan transitions into a standard mortgage with regular monthly payments.
What to Consider Before Starting
Have a Clear Budget: Construction costs can change quickly. Build in a cushion for unexpected expenses.
Choose a Trusted Builder: Lenders often require approval of your builder—choose one with a proven track record.
Understand the Timeline: Weather, permits, and supply delays can all affect your schedule, so plan realistically.
Get Expert Guidance: Working with a loan officer experienced in construction lending helps you avoid pitfalls and stay on track.
Why Work With Chris Lewis. | Home Loans
At Chris Lewis. | Home Loans, we understand that new construction comes with unique challenges. That’s why we provide flexible loan options, transparent communication, and coordination with your builder from start to finish. Whether you’re building a custom home, purchasing land, or working with a subdivision builder, we’ll guide you through every step—so you can focus on bringing your vision to life.