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Building a custom home requires a different loan than buying an existing one. Construction loans release money in stages as work is completed, and most convert into a permanent mortgage once the house is finished. This guide walks through every step, the main loan types, what lenders actually require, and how the process works for Texas buyers who already own land or plan to buy a lot.
We have guided more than a thousand families through this process since 1999. The families who move through financing most smoothly start early, keep the design sequential, and work with a builder who already knows how lenders review plans and contracts.
Construction loans finance new home builds by releasing funds in draws tied to completed work and inspections, rather than a lump sum. Most conventional programs look for a credit score of 680 or higher and a down payment in the 15–25% range.
A construction-to-permanent or one-time close loan combines the building phase financing with the permanent mortgage into a single closing, eliminating the need for a second set of fees and re-underwriting. If you already own the land, its equity often counts toward the down payment on a construction loan, which is especially relevant for build-on-your-lot projects in Texas.
We are builders, not lenders. The final loan terms, rates, and approval always come from your lender or mortgage company. Use this guide to prepare a clean package, then confirm every detail with a qualified loan officer.
A construction loan is short-term financing used to pay for labor, materials, permits, and related costs while a new house is being built. The lender does not give the full amount at closing. Instead, money is released in draws after inspections confirm each phase of work is complete.
During the build you usually pay interest only on the amount already disbursed. Once the home is finished and the final inspection passes, most loans convert into a traditional mortgage with principal-and-interest payments. Interest rates during construction are typically variable and run about one to two percentage points higher than standard 30-year mortgage rates.
The same loan can often cover the land purchase if you do not already own the lot. Design fees and architect costs are almost always paid out of pocket.
In our experience helping clients across Montgomery, Harris, and surrounding counties, the cleanest path is a construction-to-permanent loan that locks the rate early and converts automatically. We structure most of our projects this way so you avoid a second closing and the risk of rates or credit shifting mid-build.
Three main structures appear in most lender menus. The right choice depends on whether you want one closing or two, how much cash you can put down, and whether you already own the land.
FHA, VA, and USDA versions of these loans exist and can lower the down-payment requirement for eligible borrowers. Conventional one-time close loans remain the most common path for custom homes in the Greater Houston area.
For a deeper look at the single-closing option that most of our clients use, see our full guide to one-time close construction loans for Texas homebuyers.
Lenders treat construction loans as higher risk than standard mortgages because the collateral does not exist yet. Expect tighter underwriting.
Current conventional programs typically include:
Government-backed options (FHA, VA, USDA) can accept lower credit scores and smaller down payments, but the builder and plans still must meet program guidelines. Self-employed borrowers and those with complex income need extra documentation and often larger reserves. For independent consumer guidance on shopping for a mortgage, the Consumer Financial Protection Bureau resources are a reliable starting point.
We see the strongest approvals when the plans are complete, the contract is fixed-price, and the builder package includes solid insurance and references. Late design changes after the loan is submitted create friction for everyone.
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Pull your credit reports and scores from all three bureaus. Calculate a realistic total project budget that includes land or lot prep, construction, permits, contingency (10–20%), and soft costs. Use a cost to build a house calculator to get a solid starting number for your size and finish level.
Our portfolio currently averages around $213 per square foot of living space for moderate selections. Standard included features land closer to $180. Highly featured homes or smaller footprints can reach $250. Knowing these ranges early keeps the loan request realistic. Many buyers who want more control over budget explore semi-custom homes as a middle path between full custom and production. For a fuller breakdown of what drives cost, see how much it costs to build a home.
Collect two years of tax returns, recent pay stubs or profit-and-loss statements, bank and investment statements, and a full list of debts. If you already own the land, have the deed, survey, and any HOA documents ready.
Lenders want a clear picture of income stability and reserves. The more organized the package, the faster underwriting moves.
Compare one-time close versus construction-only products. Ask local banks, credit unions, and specialty construction lenders about Texas programs. Not every mortgage company offers construction financing.
We work regularly with lenders who understand custom builds and one-time close structures. Local and regional players often move faster on draw schedules than large national banks.
Submit the financial package so the lender can issue a pre-approval letter that states the maximum loan amount. This letter is useful when talking to builders and land sellers.
Pre-approval before finalizing plans keeps the design phase grounded in what you can actually finance.
Select a builder who has completed similar homes. Lenders will review the builder’s experience, insurance, and references. Finalize floor plans, specifications, and a fixed-price contract. Changes after loan approval can delay draws or require re-underwriting.
In our process, we move through Exploration and Design phases first so the plans and pricing are solid before the construction loan application. Clients who keep circling back to settled decisions during plan design create longer meetings and timeline pressure.
Settling the floor plan early (socks before shoes) keeps the rest of the package cleaner for the lender. Going outside our preferred vendors in the design center can also create delays that push the loan package back. You can see how this fits into the larger sequence in the custom home building process.
Provide the signed construction contract, complete plans and specs, detailed budget and draw schedule, builder package, and any land documents. The lender orders the as-completed appraisal.
A fixed-price contract and clear take-off help the underwriter see that the project is realistic. Incomplete specifications are one of the most common reasons packages stall.
The appraiser values the finished home based on plans and local comps. Underwriting reviews both the borrower and the project. Approval can take several weeks.
The as-completed value is what matters. Strong comps in the same school district or community help. We provide the detailed plans and budget the appraiser needs to support the number.
Sign the loan documents. Funds are placed in an escrow or controlled account. Interest-only payments begin once draws start.
On a one-time close loan, this is the only closing you will do. The permanent mortgage terms are already set.
Work proceeds according to the agreed draw schedule. The lender (or a third-party inspector) verifies each milestone before releasing the next draw. Typical milestones include foundation, framing, mechanical rough-in, drywall, and final.
Our average construction phase from start to delivery runs about 210 days once the site is ready and the loan is funded. Faster progress means less interest paid on the drawn amounts. We coordinate inspections so draws stay on schedule. For a deeper look at the full timeline, see how long it takes to build a house.
After the certificate of occupancy (if applicable) and final inspection, the construction loan converts into the permanent mortgage. On a one-time close loan this happens in a simple conversion process. On a stand-alone loan you apply for a new permanent mortgage and pay off the construction debt.
One-time close removes the risk of having to re-qualify or face a different rate at the end. That is why most of our clients prefer it.
From the builder side, lenders want a clear, fixed-price contract, complete plans that match the budget, and evidence the builder can finish on time. They review insurance certificates, licensing, and past project references. A transparent process that includes detailed take-offs and a realistic timeline reduces underwriting friction.
In our experience, the points where owners most often slow the loan package are late design changes and incomplete specifications. Settling the plan and selections before the final contract keeps the loan on track. Going outside preferred vendors during the design center phase can also turn into a rabbit hole that delays the package. Thorough review at the design-complete checkpoint prevents last-minute changes that set the schedule back.
We have completed more than a thousand homes since 1999. That track record, combined with fixed pricing and clear documentation, is what lenders look for when they evaluate the builder side of a construction loan.
Most Texas counties process building permits in two to three weeks. Municipalities can add $5,000 or more in permitting cost plus extra code requirements. Harris County has tightened flood-map rules that limit fill dirt in some areas. Montgomery County is trending in a similar direction. Grimes County remains relatively straightforward for new builds and is a growing area for us.
If you already own the lot, its equity usually counts toward the down payment. Many buyers in the Magnolia, Montgomery, Tomball, and Conroe areas use one-time close loans that fold land equity, site work, and the house into a single financing package. Land-prep costs above the base often run $20,000–$30,000 depending on slope, driveway length, and utilities. For the full land-buying process, see our guide on buying land in Texas.
For buyers who want to build on your lot, early site evaluation and soil testing help the lender underwrite accurately and avoid later change orders. We handle the lot evaluation, soils report, and utility planning as part of the pre-construction process so the loan package stays complete.
Construction loans carry more moving parts than a regular mortgage. Delays in design decisions, incomplete budgets, or builder changes can stall draws. Keep a 10–20% contingency inside the loan rather than on a credit card. Communicate early with both the lender and the builder when scope or timeline shifts.
Interest during construction is paid only on disbursed funds, so faster progress lowers the carrying cost. Our average construction phase runs about 210 days from start to delivery once the loan is closed and the site is ready.
The full calendar from contract to move-in typically falls in the 9-to-14-month range once you factor in the design and permitting work that happens before construction starts. That pre-construction window is when the loan package is assembled and approved.
The most common owner-side delays we see are circling back on decisions that were already settled, bringing outside suppliers into the design center, or treating the final design review as the first real review. Each of those slows the package the lender needs.
Yes. Construction loans have stricter requirements than standard mortgages because the house does not yet exist as collateral. Most conventional programs want a 680+ credit score, 15–25% down, and a detailed builder package.
Conventional construction loans typically require 680 or higher. FHA construction-to-permanent options can go as low as 580 with a 3.5% down payment. VA and USDA programs set no official minimum, but most lenders look for 620–640.
Expect 15–25% for conventional one-time close loans. FHA can be 3.5%, and VA or USDA may allow zero down for eligible borrowers. Owned land equity often reduces the cash needed.
Not always required. Many construction-to-permanent loans let the land equity count toward the down payment. Paying it off first can simplify underwriting but is not mandatory.
Harder. Lenders review both the borrower and the builder, plans, and budget. Two sets of closing costs can apply on stand-alone loans. One-time close products reduce that friction.
You pay interest only on the amount already drawn during construction. Once the loan converts to a permanent mortgage, payments include principal and interest on the full balance.
Yes. That is exactly what a construction-to-permanent or one-time close loan does. The construction phase financing converts into the permanent mortgage after the final inspection.
No single bank is best for everyone. Local banks, credit unions, and specialty construction lenders often outperform national retail mortgage companies on one-time close products. Compare terms, draw processes, and builder familiarity.
Pre-approval can happen in days to a couple of weeks. Full underwriting and closing often take 30–45 days after the plans and contract are complete. Construction itself averages around 210 days once work begins.
Yes. Both offer construction-to-permanent options. FHA requires the builder to meet specific guidelines and can allow 3.5% down. VA may offer zero down for eligible veterans. See the official FHA construction loan guidelines and VA home loan benefits for current program rules, or review our detailed FHA new construction loan requirements.
Secure financing early so the design and lot decisions stay grounded in a real budget. Once you have a clear picture of the loan amount and structure, the rest of the process—plans, permits, and construction—moves more smoothly.
If you are ready to explore numbers for a custom home in the Greater Houston area, start with our cost to build a house calculator or schedule a free consultation. We can walk through how a one-time close loan typically works with our fixed-price contracts, review current incentives, and help you prepare a clean package for the lender.
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