Build Your Dream Home
Building a home is exciting, but it requires special financing that most traditional mortgages don't provide. Joe Metzler offers construction loan solutions that give you the flexibility to build your custom home, then seamlessly transition to permanent financing once construction is complete.
With over 25 years of experience in construction lending, we understand the unique challenges of building projects and can guide you through the process from blueprint to move-in.
Construction Loan Options
Two ways to finance your new construction project
Standard Construction-to-Permanent
The traditional two-step process: construction financing first, then permanent mortgage upon completion. This option typically offers better long-term rates and terms.
How It Works:
- Phase 1: Short-term construction loan (6-12 months) to fund building costs
- Interest-only payments during construction to keep costs low
- Phase 2: Refinance into permanent mortgage when home is complete
- Draw schedule: Funds released as construction milestones are met
Benefits:
- Better permanent rates: Lock in current market rates when construction is done, not today
- Flexibility: Shop lenders for the best permanent financing terms
- Lower initial costs: Interest-only during construction period
- Full control: Choose any permanent lender when the time comes
- Competitive construction rates: Banks compete for the short-term construction portion
Best For: Most home buyers who want optimal long-term financing and don't mind the two-step process.
One-Time Close Construction Loan
A single loan that covers both construction and permanent financing, locked in from the start. While convenient, this option comes with significant trade-offs that you should carefully consider.
How It Works:
- One application: Apply once for both construction and permanent financing
- One closing: Only pay closing costs once upfront
- Rate locked early: Permanent rate set before construction begins
- Automatic conversion: Loan converts to permanent mortgage upon completion
⚠️ Important Considerations:
- Higher rates: One-time close loans typically carry higher interest rates to account for the lender's extended risk period
- Rate risk: If rates drop during construction, you're stuck with your locked rate unless you refinance (defeating the purpose)
- Limited flexibility: You're committed to that lender for the long term, even if better options emerge later
- Higher fees: Many lenders charge premium fees for the convenience of one-time close
- Stricter requirements: Harder qualification standards due to the long-term commitment
- Construction delays: If building takes longer than expected, rate lock extensions can be costly
- Less lender competition: Fewer lenders offer this product, reducing your negotiating power
When It Might Make Sense: If you absolutely cannot qualify for two separate loans or are certain rates will rise significantly during construction. Otherwise, the traditional two-step process usually saves money long-term.
The Construction Loan Process
From application to move-in: what to expect
Pre-Approval & Planning
Get pre-approved for construction financing before you finalize your builder and plans. We'll review your financial situation, construction budget, and timeline to ensure you're positioned for success.
Builder Approval
Lender will review and approve your builder's credentials, licenses, insurance, and track record. This protects both you and the lender from working with unqualified contractors.
Appraisal & Plans
Appraisal based on plans and specs (not yet-built home). Lender reviews detailed construction plans, specifications, and fixed-price contract to ensure project feasibility.
Loan Closing
Close on the construction loan. Funds are held in escrow and disbursed according to the draw schedule as construction progresses. You make interest-only payments on funds drawn.
Construction & Draws
Builder completes work in stages. Inspector verifies completion at each milestone before funds are released. Typical draw schedule: Foundation, Framing, Dry-in, Mechanicals, Final.
Completion & Refinance
Final inspection confirms completion. Certificate of Occupancy issued. We then refinance your construction loan into a permanent mortgage with optimal long-term rates.
Construction Loan Requirements
Down Payment
- Primary Residence: Typically 20% of total project cost (land + construction)
- Investment Property: Usually 25-30% down payment required
- Jumbo Construction: May require 25% or more depending on loan size
- Land Equity: If you already own the land, its value counts toward down payment
Credit & Income Requirements
- Credit Score: Minimum 680 recommended, 720+ for best rates
- Debt-to-Income: Usually capped at 43-45% including new housing payment
- Income Documentation: 2 years tax returns, W-2s, pay stubs
- Cash Reserves: Typically 6-12 months payments in savings post-closing
Builder Requirements
- Licensed general contractor in good standing
- General liability and workers compensation insurance
- Proven track record (usually 2+ years experience)
- Detailed construction contract with fixed price
- Building permits and approvals in place
Typical Terms
- Construction Period: 6-12 months (extensions available)
- Interest Rate: Variable during construction, based on Prime + margin
- Payments: Interest-only on drawn funds
- Fees: Inspection fees at each draw (typically $100-150 each)
- Contingency Reserve: 5-10% of construction cost recommended
Ready to Start Building?
Let's discuss your construction project and find the financing solution that works best for your situation.
Or call Joe directly at (651) 552-3681