What financing options are available for buying a new construction home?

Buying a new construction home is an exciting journey filled with possibilities—from choosing your ideal floor plan to selecting finishes that match your style. But before you start designing your dream home, it's crucial to understand your financing options.

One of the most common questions homebuyers ask is: “What financing options are available for buying a new construction home?” The good news is there are several loan programs tailored specifically to new builds, each with its own benefits, requirements, and timeline.

In this blog, we’ll break down the most popular mortgage options for new construction homes, so you can choose the one that best fits your needs.

1. Construction-to-Permanent Loan

A construction-to-permanent loan (also known as a one-time close loan) is a popular option for buyers working with a custom builder.

How it works:

• You take out a loan to cover the cost of construction.

• Once the home is built, the loan converts into a permanent mortgage.

• You only close once, saving you time and money on closing costs.

Pros:

• One closing means fewer fees and less paperwork.

• Locked-in interest rate for both construction and permanent phases.

• Streamlined process from start to finish.

Best for:

Buyers building a custom or semi-custom home from the ground up.

2. Construction-Only Loan

This is a short-term loan that covers only the construction period (usually 6 to 12 months). Once the home is complete, you’ll need to apply for a separate mortgage to pay off the construction loan.

Pros:

• Flexible options during the construction phase.

• Often used by experienced buyers or investors.

Cons:

• Requires two separate closings.

• You may pay two sets of closing costs.

• Interest rates may be higher than traditional mortgages.

Best for:

Buyers who already own the land or are working with a non-traditional builder.

3. Builder Financing

Many large builders have in-house or preferred lenders who offer builder-financed mortgages with special incentives.

Common perks include:

• Lower interest rates or closing cost credits.

• Free or discounted upgrades.

• Streamlined loan approval process tailored to the builder’s timeline.

Things to consider:

• Always compare offers from the builder’s lender with outside mortgage lenders to ensure you’re getting the best deal.

Best for:

Buyers purchasing in a planned community or subdivision built by a production builder.

4. Traditional Mortgage (for Move-In Ready Homes)

If you’re buying a spec home or quick move-in new construction that’s already completed or nearly finished, you can use a traditional mortgage loan, such as:

• Conventional loan

• FHA loan (great for first-time buyers)

• VA loan (for qualified veterans and service members)

• USDA loan (for eligible rural areas)

These options offer competitive interest rates and lower down payment requirements, depending on the loan type and your qualifications.

Tips for Financing a New Construction Home

✅ Get pre-approved early: Know your budget and show builders you’re a serious buyer.✅ Ask about interest rate locks: Some lenders offer long-term rate locks for homes still under construction.✅ Review builder incentives carefully: Sometimes a “deal” may come with trade-offs—read the fine print.✅ Understand draw schedules: With construction loans, funds are released in phases (draws), and the builder must meet milestones for payment.

Final Thoughts

Understanding the financing options for new construction homes is key to making a smart investment in your future. Whether you're building from scratch or buying a completed home, the right mortgage strategy can save you thousands and make the process stress-free.

🏡 Ready to build or buy your dream home?Let’s talk about your financing options and connect you with trusted lenders and builders. I’ll help guide you every step of the way. Contact me today to start your new construction journey with confidence!