New Construction Loans
Finance Your Custom Home Build from Ground Up
New construction loans through Howell Mortgage Group provide financing for building a home from the ground up, covering land acquisition, labor, materials, and construction costs. Available as construction-to-permanent (single-close) or construction-only loans, these programs release funds in stages as building milestones are completed.
What Are New Construction Loans?
New construction loans are short-term financing products that cover the costs of building a new home, including land purchase, materials, labor, permits, and related construction expenses. Unlike traditional mortgages that finance existing properties, construction loans fund the building process itself and are designed to convert into permanent mortgage financing upon completion.
Funds are not disbursed in a single lump sum. Instead, the lender releases money in a series of draws based on construction milestones, such as foundation completion, framing, roofing, mechanical systems, and final inspection. This draw schedule protects both the lender and the borrower by ensuring work is completed before additional funds are released.
Construction loans carry higher interest rates than permanent mortgages because the property does not yet exist as completed collateral. During the construction phase, borrowers typically make interest-only payments on the amount drawn, keeping monthly costs manageable while the home is being built.
Types of Construction Loans
Construction-to-Permanent (Single Close)
The most popular option. One loan covers both construction and the permanent mortgage. After construction, the loan automatically converts to a traditional mortgage with a locked rate, eliminating the need for a second closing.
Owner-Builder
For borrowers who plan to act as their own general contractor. Requires demonstrated construction experience, detailed project management plans, and sometimes a licensed contractor as consultant.
Construction Only
Covers only the construction phase. Once building is complete, you must obtain a separate mortgage to pay off the construction loan. This involves two closings and two sets of closing costs but offers flexibility in shopping for the best permanent rate.
Spec/Builder
For professional builders constructing homes without a pre-committed buyer. The finished home is listed for sale, and the loan is repaid from the sale proceeds.
Renovation Construction
Finances major renovations to an existing property that go beyond what a standard home improvement loan covers. The scope of work resembles new construction in scale and cost.
How Construction Loans Work
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Pre-Approval
Submit financial documents and the project overview to Howell Mortgage Group for pre-approval. This establishes your borrowing capacity and the loan amount available for your build. -
Select a Builder
Choose a licensed, insured builder with a proven track record. The lender will review the builder’s credentials, financial stability, and construction history. -
Submit Plans and Budget
Provide detailed architectural plans, a complete cost breakdown from your builder, and a construction timeline. The lender reviews these for feasibility. -
Appraisal
A certified appraiser evaluates the completed home’s projected market value based on the plans, specifications, and comparable recent sales in the area. -
Construction Phase
The builder begins construction. Funds are released in draws as milestones are completed and inspected. You make interest-only payments on the drawn amount. -
Conversion or Payoff
Upon completion and final inspection, the construction loan converts to a permanent mortgage (single-close) or is paid off with a new mortgage (construction-only).
Benefits of Construction Loans
Custom Home Design
Build exactly the home you want with your preferred floor plan, finishes, and features, rather than compromising on an existing property.
Draw-Based Funding
The staged funding structure ensures construction progress before additional money is released, protecting your investment throughout the build.
Single Close Convenience
Construction-to-permanent loans close once and convert automatically, saving time and the cost of a second closing.
Modern Building Standards
New construction meets current energy codes, safety standards, and material specifications, reducing long-term maintenance and utility costs.
Interest-Only During Construction
Pay interest only on the amount drawn during the building phase, keeping monthly costs low while the home is under construction.
Who Should Consider a Construction Loan?
Construction loans are designed for borrowers who want to build a custom home rather than purchase an existing property. If you have a specific vision for your living space, own or plan to purchase a building lot, and want full control over the design, materials, and construction quality, a construction loan makes this possible.
Borrowers building in areas where existing inventory is limited or does not meet their needs benefit significantly. In rural markets, growing suburbs, and custom lot developments, new construction may be the only way to achieve the home you want at the price point that works for your budget.
Financial readiness is important for construction loans. Lenders typically require credit scores of 680 or higher, down payments of 20% or more, and documented cash reserves to cover contingencies. Strong borrower profiles ensure smooth approval and favorable terms throughout the construction timeline.
How Does This Compare?
Feature | Construction-to-Perm | Construction Only | Renovation | Traditional Mortgage |
|---|---|---|---|---|
Credit Score | 680+ | 680+ | 620+ | 620+ |
Interest During Build | Interest-only on draws | Interest-only on draws | Interest-only | N/A |
Down Payment | 20%+ | 20%+ | 10-20% | 3-20% |
Permanent Financing | Automatic conversion | Separate mortgage | Same loan | Already permanent |
Construction Funding | Yes (draws) | Yes (draws) | Yes (draws) | No |
Closings Required | 1 | 2 | 1 | 1 |