Build it without carrying two payments.
Construction financing typically runs interest-only while the house goes up, with funds released to your builder on a draw schedule, then converts to permanent financing.
Talking to builders? Loop me in before you sign, not after.
Why financing shapes the build
Buying an existing home is a single transaction on a known property. Building is a project financed in stages against something that does not exist yet, which makes the financing structurally different.
During construction you typically pay interest only on the funds drawn so far, not on the full loan, so the carrying cost starts small and grows as the house does. Money is released to the builder in draws tied to completed stages, usually with an inspection before each release. When the house is finished, the loan converts to permanent financing.
The mistake I see most is treating financing as the last step. Your builder's contract, draw schedule, and timeline all interact with the loan, and they are far easier to align before signatures than after. Bring me in early and the build gets simpler.
How the structure helps
Interest-only during the build
You are generally paying interest only on what has actually been drawn, which keeps the carrying cost manageable while you may also be paying rent or an existing mortgage.
One-close options
Some programs combine construction and permanent financing into a single closing, so you are not paying two sets of costs or requalifying partway through the project.
Draws tied to progress
Funds release as stages complete, which protects you as well as the lender. Nobody is handing the full budget over on day one.
Inspections at each stage
The required inspections are a genuine benefit. A third party verifying that work is actually complete before money moves is worth having.
Renovation financing too
The same basic mechanics apply to major renovations, where the loan is based on the value the completed work will create rather than today's condition.
Land can often be included
If you do not already own the lot, some programs finance the land acquisition alongside the construction rather than requiring it separately.
What to plan for
None of these are reasons not to build. They are reasons to have the financing conversation early.
Your builder gets vetted too
Lenders review the builder, not only you. Licensing, insurance, experience, and financial stability all matter, and not every builder clears every lender's bar.
Contingency in the budget
Projects change. Lenders generally expect a contingency, and having one is what keeps a mid-build surprise from becoming a financing crisis.
Timelines slip
Weather, permits, and supply chains move dates. Build realistic assumptions into your plan, including where you will live if completion runs late.
Rate exposure during the build
Depending on the structure, your permanent financing may not be locked at the start. This is one of the most important structural questions to settle before you begin, and it is specific to the program you choose.
How this goes
Talk before you sign
Bring me the builder, the plans, and the budget while they are still drafts. The financing structure affects what you can safely commit to.
Match program to project
One-close versus two-close, land included or not, and how the permanent financing is handled. These choices are made once and are difficult to unwind.
Manage the draws
Through construction I stay in it, coordinating draws and inspections with your builder so the project keeps moving.
Common questions
What is the difference between one-close and two-close? +
A one-close, sometimes called construction-to-permanent, handles construction and permanent financing in a single transaction, so you close once. A two-close arrangement finances construction first and then requires a separate refinance into permanent financing at completion, meaning a second closing and requalification. Each has tradeoffs, and the right choice depends on your timeline and how much certainty you want.
Do I need to own the land already? +
Not necessarily. Some programs finance the land purchase along with construction. If you already own the lot, its value can often count toward your equity in the project, which can substantially reduce what you need to bring.
How much do I need to put down? +
Construction financing generally requires more equity than a standard purchase, and the calculation is usually based on the completed value of the project rather than the cost. Land you already own frequently counts toward it. Send me the specifics and I will give you a real figure.
Can I act as my own builder? +
It is difficult. Most lenders require a licensed general contractor, and owner-builder arrangements are limited and heavily scrutinized where they exist. If this is your plan, raise it at the very start, because it narrows the field considerably.
What happens if the project runs over budget? +
This is exactly why lenders expect a contingency and why the initial budget deserves care. Cost overruns beyond the contingency generally have to be covered by you, so an honest budget at the start protects you far more than an optimistic one.
Who do I call with questions? +
Me, directly. Rich Preston at (448) 202-7711 or rich@prestonlending.com. Ask me anything before you apply. There is no cost and no obligation.
Building soon?
Bring me the plans and the builder before you sign anything. The financing structure shapes what you can commit to.
Construction loan programs, draw schedules, inspection requirements, builder approval criteria, contingency requirements, equity requirements, and the treatment of interest rates between the construction and permanent phases are established by individual lenders and vary significantly by program. Construction timelines and costs are the responsibility of the borrower and builder. Cost overruns beyond financed amounts are generally the borrower's responsibility. This page is for informational purposes and is not an offer or commitment to lend. All loans are subject to credit approval, income and asset verification, and property appraisal. Rich Preston, Branch Manager, NMLS 1735238. NEXA Lending, AZ Broker License 0944059, NMLS 1660690. Equal Housing Lender.