? 1. Understand Construction Financing Basics

When you build a house from the ground up, you cant use a regular mortgage right away. Instead, you typically need a construction loan, which covers the build phase and is then converted into a long-term mortgage or paid off upon sale.

?? Types of Residential Construction Projects:

• Owner-built primary home

• Investment rental build

• Spec home for resale

• Custom-built home on your land

? 2. Common Types of Construction Financing

? A. Construction-to-Permanent Loan (One-Time Close)

• Combines construction and mortgage into one loan

• One application, one closing

• Interest-only payments during construction

• Converts to 15- or 30-year mortgage after completion

? Best for: Building your own home (to live in)

? B. Standalone Construction Loan

• Covers only the construction phase

• You pay interest-only during the build

• Must refinance or pay off with a mortgage after construction

? Best for: Developers, flippers, or short-term builders

? C. Owner-Builder Construction Loan

• You act as your own general contractor

• Rare and harder to qualify for

• Lenders require building experience and detailed plans

? Best for: Experienced builders or licensed contractors

? D. Hard Money Construction Loan

• Funded by private lenders

• Fast approval, flexible terms, high interest (8%15%)

• Short-term (618 months)

? Best for: Flips, investment builds, or when you need fast capital

? 3. What Lenders Look For

Lenders will approve your loan based on:

?? 4. How Funds Are Disbursed (The "Draw Process")

You dont get the full loan up front. Instead, funds are released in draws as construction progresses.

Typical draw stages:

1. Land purchase (if included)

2. Foundation complete

3. Framing

4. Rough-in (plumbing, HVAC, electric)

5. Drywall and finishes

6. Final inspection

? Youll submit invoices and inspection reports for each draw.

? 5. Understand Construction Loan Costs

? Be prepared to bring cash to closing and have reserves for delays or overruns.

? 6. Where to Get Construction Financing

• Banks & credit unions (best for owner-occupied)

• Mortgage brokers

• Private/hard money lenders (for investors)

• Local construction lenders (regional specialists)

• FHA One-Time Close loans (for qualifying borrowers)

? Some lenders specialize in construction loansdont assume your regular mortgage lender handles them.

? 7. What Happens After Construction?

Once the home is built:

• You get a Certificate of Occupancy

• Construction loan either:

  • Converts to a mortgage (if one-time close)

  • Is refinanced into a new mortgage (if standalone)

  • Is paid off with sale proceeds (if flipping or spec home)

? Summary: How to Finance a Residential Construction Project