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Construction Loans: Financing the Home You Build

Building a home lets you choose the floor plan, finishes and features you want from day one. Paying for it works differently from buying an existing home, because there’s no finished house yet to secure the loan. Here’s how construction financing works and how to prepare.

Reviewed by Patriot Home Mortgage compliance, October 2026 · 3 min read

How a construction loan works

A construction loan pays for building your home in stages. Instead of handing over the full amount at closing, the lender releases money in draws as the builder completes each phase, such as the foundation, framing and finishes. An inspector usually confirms the work before each draw.

During construction, you typically pay only interest on the amount drawn so far. Once the home is finished, the loan is paid off or converts into a regular mortgage.

The main types

Construction-to-permanent (one-time close)

One loan covers both construction and the long-term mortgage. You close once, and when the home is complete, the loan converts to a standard mortgage.

  • One set of closing costs
  • No need to requalify after the home is built
  • Available with some conventional, FHA and VA programs

Construction-only (two-time close)

A short-term loan pays for construction. When the home is finished, you take out a separate mortgage to pay it off.

  • Flexibility to shop for your permanent mortgage later
  • Two closings and two sets of costs
  • You must qualify again for the permanent loan, so a change in income or credit during construction can cause problems

Renovation construction

If you’re rebuilding or significantly remodeling an existing home, a renovation loan may fit better. Our FHA 203(k) guide covers one option.

What lenders look for

Because the home doesn’t exist yet, construction loans involve more review than a standard purchase:

  • Credit and income that comfortably support the finished loan
  • A down payment, which varies by program; owning the land may count toward it
  • A qualified builder, usually licensed and insured, approved by the lender
  • Detailed plans and a budget, including a signed construction contract and materials list
  • An appraisal based on the home’s value once complete

Build in a cushion. Construction projects often run over budget or schedule. Many lenders require a contingency reserve, and it’s wise to keep extra savings of your own.

Benefits of building your own home

  • Designed around your life. Choose the layout, number of bedrooms, storage and finishes.
  • Accessibility from the start. Wider doorways, single-level living or accessible bathrooms are easier and often less costly to build in than to add later.
  • Energy efficiency. Modern insulation, windows and systems can lower utility bills.
  • Everything is new. New construction often comes with builder warranties, and you’re less likely to face major repairs in the first years.

Building with a VA loan

Eligible veterans can use VA financing for new construction through some lenders, potentially with no down payment. VA construction loans have their own builder and inspection requirements, so ask early whether your project qualifies. Our VA loan guide covers eligibility.

How to get started

  1. Talk to a loan officer first, before you sign with a builder, to understand your budget and loan options.
  2. Choose a builder the lender will approve.
  3. Finalize plans and a budget, including land, permits, construction and a contingency.
  4. Get approved and close, then draws begin as construction moves forward.

Talk to a Patriot loan officer

Every situation is different, and a short conversation is the quickest way to know what fits yours.

Find a loan officerSee where we lend

This article is general information, not an offer to lend or a commitment to lend. All loans are subject to credit approval, underwriting and property valuation. Belem Servicing LLC, NMLS ID #715386 (NMLS Consumer Access).

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