At The Bihn Group, building a home is one of the most exciting things we get to be part of. It is also one of the areas where people have the most questions, especially when it comes to financing.
Construction loans work differently than a traditional mortgage, and understanding the process upfront can make everything feel a lot smoother.
Here is a simple breakdown of how it works.
How construction loans are structured
There are two main options when it comes to construction loans.
A one-time close means your construction loan and your permanent mortgage are wrapped into one. You are approved upfront, and once the home is complete, it transitions into your long-term loan.
A two-time close means you will have one loan during construction and then apply for a separate mortgage once the home is finished.
Both options can work well, it just depends on your timeline, goals, and comfort level with interest rates.
What happens during construction
Construction loans do not work like a typical loan where you receive all the funds at once.
Instead, funds are released in stages, called draws, as different parts of the home are completed. You are usually only paying interest on the amount that has been used during this phase.
This gives you flexibility while your home is being built, which typically takes around 12 to 18 months.
Getting ready for your permanent loan
As your home nears completion, the focus shifts to your long-term financing.
You will need to provide updated documents like income and bank statements, and your credit will be reviewed again. It is important to keep everything steady during construction so there are no surprises at the end.
Depending on your loan type, you may also have the opportunity to update your loan based on a new appraisal.
Final approval and loan options
Your final loan will go through underwriting just like a traditional mortgage.
At this stage, you will confirm the loan program that fits you best, whether that is conventional, FHA, or VA, along with your loan term.
Some buyers choose to lock in their rate early for peace of mind, while others may adjust depending on market conditions closer to completion.
Closing and move-in
Once everything is approved, you will move into closing.
You will sign your final paperwork, pay any closing costs, and finalize the loan. After that, funding typically happens right away, and you are ready to move in.
One important step before this is the certificate of occupancy, which confirms your home meets all local building requirements and is ready to be lived in.
From that point forward, your loan becomes a standard mortgage with regular monthly payments.
How The Bihn Group helps
At The Bihn Group, we guide you through every stage of the build, not just the financing.
We help you understand your budget early, stay on track during construction, and make sure your transition into your permanent loan is smooth and stress-free.
Final thought
Building a home is a big process, but it does not have to feel overwhelming.
When you understand how the loan works and have the right team guiding you, you can focus on what matters most, creating a home that is truly yours.
