Fundamentals & Overview

How to Build a Home with a Construction Loan

The Path to Your Custom Home

For many, the dream of homeownership isn't found in an existing house on the market, but in the vision of a home built specifically for their family. This is where construction loans come into play. A construction loan is a unique financial tool that allows you to finance the building of a new home from the ground up. In this guide, we'll walk through the entire process, from pre-approval to moving day.

What is a Texas One-Time Close Loan?

The most popular and efficient way to finance a new build is through a Texas One-Time Close Loan. As the name suggests, this program combines the construction financing and the permanent mortgage into a single loan with one closing. This means you only pay one set of closing costs and lock in your permanent interest rate before the first shovel ever hits the ground.

Step 1: Pre-Approval and Budgeting

The very first step is to determine your budget. A construction loan pre-approval is more complex than a standard mortgage pre-approval because it must account for both the land purchase (if you don't already own it) and the total cost of construction. We will look at your income, assets, and credit to determine your maximum project budget.

Step 2: Selecting Your Team

Building a custom home requires a team of professionals. You will need an architect to design the plans and a licensed builder to execute the vision. The lender will need to approve your builder, looking at their experience, financial stability, and references. This is a critical step to ensure your project is in good hands.

Step 3: The Appraisal

Once you have your plans and a detailed cost breakdown from your builder, the lender will order an "as-completed" appraisal. The appraiser will look at your plans and comparable homes in the area to determine what the home will be worth once it is finished. This value is used to determine your final loan amount.

Step 4: Closing and the Draw Process

After your loan is approved, you will head to the closing table. Once the loan is closed, construction can begin. The lender doesn't give all the money to the builder at once. Instead, funds are disbursed in "draws" as specific stages of construction are completed (e.g., foundation, framing, roofing). Each draw is preceded by an inspection to verify the work has been done correctly.

Step 5: Moving In

When construction is complete and the local municipality has issued a Certificate of Occupancy, the final draw is released. Because you chose a Texas One-Time Close Loan, your construction financing automatically converts to a permanent mortgage. There is no second closing—you simply start making your regular mortgage payments and move into your dream home.

Conclusion

While building a custom home is a major undertaking, the right construction loan makes the process manageable and secure. With 26 years of experience, I can guide you through every step, ensuring your financing is the strongest part of your project. Contact me today to start your pre-approval.

The Path to Your Custom Home

For many, the dream of homeownership isn't found in an existing house on the market, but in the vision of a home built specifically for their family. This is where construction loans come into play. A construction loan is a unique financial tool that allows you to finance the building of a new home from the ground up. In this guide, we'll walk through the entire process, from pre-approval to moving day.

What is a Texas One-Time Close Loan?

The most popular and efficient way to finance a new build is through a Texas One-Time Close Loan. As the name suggests, this program combines the construction financing and the permanent mortgage into a single loan with one closing. This means you only pay one set of closing costs and lock in your permanent interest rate before the first shovel ever hits the ground.

Step 1: Pre-Approval and Budgeting

The very first step is to determine your budget. A construction loan pre-approval is more complex than a standard mortgage pre-approval because it must account for both the land purchase (if you don't already own it) and the total cost of construction. We will look at your income, assets, and credit to determine your maximum project budget.

Step 2: Selecting Your Team

Building a custom home requires a team of professionals. You will need an architect to design the plans and a licensed builder to execute the vision. The lender will need to approve your builder, looking at their experience, financial stability, and references. This is a critical step to ensure your project is in good hands.

Step 3: The Appraisal

Once you have your plans and a detailed cost breakdown from your builder, the lender will order an "as-completed" appraisal. The appraiser will look at your plans and comparable homes in the area to determine what the home will be worth once it is finished. This value is used to determine your final loan amount.

Step 4: Closing and the Draw Process

After your loan is approved, you will head to the closing table. Once the loan is closed, construction can begin. The lender doesn't give all the money to the builder at once. Instead, funds are disbursed in "draws" as specific stages of construction are completed (e.g., foundation, framing, roofing). Each draw is preceded by an inspection to verify the work has been done correctly.

Step 5: Moving In

When construction is complete and the local municipality has issued a Certificate of Occupancy, the final draw is released. Because you chose a Texas One-Time Close Loan, your construction financing automatically converts to a permanent mortgage. There is no second closing—you simply start making your regular mortgage payments and move into your dream home.

Conclusion

While building a custom home is a major undertaking, the right construction loan makes the process manageable and secure. With 26 years of experience, I can guide you through every step, ensuring your financing is the strongest part of your project. Contact me today to start your pre-approval.