Step 1: Financing

New Construction is typically financed via a Construction Loan. Construction Loans are short term loans given by local banks and offer disbursements (or draws) to the builder for work completed on a home. Once a home is finished, the Construction Loan is generally rolled over into a more traditional mortgage.

To start your building journey, you should first meet with your local bank to discuss Construction Loan options. The bank will run your information (income, credit scores, existing debt, cash or other equities, etc) and generate a loan amount and loan pre-approval. This pre-approval is the amount of money that the bank would loan you. However it’s important to note that the bank is not committing to loan you the full amount. The bank will only loan you a portion (typically 80%) of the appraised value of the new home, not the construction costs. Therefore it’s critical to keep your project costs inline with your neighborhood and / or like-properties.