Construction
How does financing work when you are building instead of buying?
A construction loan funds the build itself, released in stages as work is completed, then converts into a standard mortgage once the home is finished. It is a different process than a purchase loan because the lender is financing a plan and a builder, not an existing property.
Building instead of buying
Construction financing gets more questions and more confusion than almost anything else I work on, mostly because people assume it works like a purchase loan with extra paperwork. It does not.
The lender is underwriting your builder and your plans as much as they are underwriting you. Funds release in stages as the build hits milestones, foundation, framing, and so on, rather than all at once at closing. A one-time close structure rolls the construction loan and the permanent mortgage into a single closing, so you are not qualifying twice or paying two sets of closing costs.
Central Texas has enough new construction, especially out toward Dripping Springs and Driftwood, that I see this file type regularly. Knowing which lenders on the panel actually want to do construction, and which builders they already have a relationship with, changes how smoothly this goes.
Quick facts
- Down payment
- Typically 10% to 20%, varies by lender
- Credit guidelines
- Generally 680+
- Typical timeline
- Build timeline varies, closing itself typically 45 to 60 days
- Occupancy
- Primary residence, most commonly
What it usually takes
- A builder and a set of plans the lender can underwrite
- A larger down payment than a standard purchase, the exact number depends on the lender
- Strong documentation of income and reserves through the build period
- Patience for a longer, staged closing process
Guidelines vary by lender, and I shop across more than 40 of them. Missing one of these is a reason to talk, not a reason to assume the answer is no.
This is not a commitment to lend. All loans are subject to credit approval, income and property verification. Rates, terms, and programs are subject to change without notice. Nook Lending is powered by MPA Home Loans. Jennifer Ferrara, Loan Officer, NMLS #2781982. MPA Home Loans NMLS #2778343. Equal Housing Opportunity.
Jennifer Ferrara
Loan Officer · NMLS #2781982
Fourteen years navigating real estate deals taught me to listen before I recommend anything. Tell me what you're working with, and let's talk it through.
Where I Lend
Licensed throughout Texas, and I speak Spanish. Don't see your town? Ask, I am probably still in reach.
Cities I specialize in:
Kyle, TX · Buda, TX · San Marcos, TX · South Austin · Dripping Springs, TX · Driftwood, TX
See all service areasIs this loan right for you?
This fits if
Buyers building a custom home or working with a builder on a new construction property, especially where a one-time close saves a second round of closing costs.
Look elsewhere first if
If you are buying an already-built home, even a brand new one from a production builder, a standard purchase loan is simpler.
Pros
- One-time close rolls construction and the permanent loan into one closing
- Funds release in stages, matching what you actually owe the builder
- Lets you build exactly what you want instead of compromising on inventory
Cons
- More documentation and a longer process than a standard purchase
- Larger down payment typically required
- Fewer lenders on the panel actively want construction files
Questions people actually ask
About Construction
It combines the construction financing and your permanent mortgage into a single closing, so you qualify once and pay one set of closing costs instead of two. It is usually the simpler structure when your builder and lender both support it.
Other options
Worth comparing against
Very few files have exactly one right answer. These are the ones that most often come up alongside this.
First-Time Homebuyer
Anyone buying their first home, or buying again after several years away from ownership.
Conventional
Buyers with solid credit who want the lowest long-run cost and want mortgage insurance to eventually go away.
FHA
Buyers rebuilding credit, carrying more debt than conventional allows, or working with a small down payment.
Jumbo
Buyers in the higher price bands, often self-employed professionals and move-up buyers.
Reviewed by Jennifer Ferrara, NMLS #2781982 · Last updated 2026-08-11
Wondering if Construction is right for you?
Send me the specifics and I will tell you what actually fits. If a different program serves you better, that is what I will say.