Construction Loans 101
If you are ready to build a new construction home, you may be looking at financing options and considering a construction loan. If this is your first time building a house, it may seem daunting but the professionals at Creative Home Designs understand the building process and what it takes to satisfy the requirements for your new construction home loan.
Having a seasoned home designer on your side can be beneficial for several reasons, one benefit is that we understand the lending process for your construction loans. We break it down for you in this article.
WHAT IS A CONSTRUCTION LOAN?
A construction loan is designed for building a home, including custom homes. A construction loan is a short-term loan, usually one year or less, that covers land purchase, labor, and construction materials.
A construction loan typically converts into a traditional mortgage after your home build is complete.
HOW ARE FUNDS DISPERSED WITH A CONSTRUCTION LOAN?
Funds are dispersed in increments upon completion of key phases and processes. For example, you may receive a disbursement for the purchase of the land and then another disbursement after the concrete is poured.
You will have a draw schedule that is based on construction milestones that allow you access to your funds as you need them. One advantage of a Construction Loan is that you only pay interest on the amount that has been distributed, not the total loan amount.
CHECK OUT OUR CUSTOM HOME BUILDING BLOG TO READ MORE: 6 Ways to Build a Fire-Resistant Custom Home in Oklahoma [2025]
HOW DO YOU QUALIFY FOR A CONSTRUCTION LOAN?
Your lender will look at your credit score, and debt-to-income ratio, and require a down payment of around 20% or more.
In addition to these financial requirements, you must submit detailed construction plans, often called a “blue book”, realistic budget estimates, and architectural design plans. You must also have signed a contract with a licensed builder.
That’s where our professional home designers come in! Having a home designer on your side will ensure that you have the proper documentation and expectations before entering the construction phases of your home build.
Your “blue book” includes detailed dimensions, a list of building materials, cost, vendors, suppliers, and a timeline for the building project.
To ensure that you adhere to the strict lending criteria, we draw up professionally rendered elevations, blueprints, and electrical plans and connect you to trusted builders in our network so you can feel confident applying for and securing your new construction loan and signing with a contractor.
CLICK TO READ MORE BLOGS ABOUT CUSTOM HOME BUILDING: 5 Reasons to Hire a Home Designer
LET’S BUILD
The seasoned home builders at Creative Home Designs are ready to help you bring your dream home to life by creating 3D rendering, home elevations, and blueprints to submit to your lender.
We can customize one of our existing home design plans to fit your lot’s square footage and personal aesthetic or we can dream up something completely unique!
Get in touch today to get started!