Mortgage Guides
New Construction Loans 2026: Financing Your Custom-Built Home
7 min read · 2025-09-01
Building a home from the ground up requires a different type of financing. Here's how construction loans work in 2026.
Building a custom home is the ultimate personalization — but financing one is fundamentally different from buying an existing property. Understanding your construction loan options is essential before breaking ground.
Construction-to-Permanent Loans (One-Time Close)
The most common route in 2026: a single loan that covers both the construction phase and converts to a permanent mortgage when the home is complete. You close once, lock your rate at origination, and make interest-only payments during construction. At completion, it automatically converts to your permanent mortgage.
Stand-Alone Construction Loans (Two-Time Close)
A short-term loan covering construction costs only. When the home is complete, you refinance into a permanent mortgage. Benefit: you get the permanent rate at market conditions when construction is done. Risk: rates could be higher by then.
Construction Loan Requirements
- Min credit score: 680–700 for most lenders
- Down payment: 20–25% of total project cost (land + construction)
- Builder must be licensed and pre-approved by the lender
- Detailed construction contract and timeline required
- Funds disbursed in draws as construction milestones are met
- Lender inspects before each draw disbursement
Budget a 10–15% contingency above your contractor's bid. Overruns are nearly universal in new construction. Lenders often require you to show this reserve before approving.
Builder Financing vs. Bank Construction Loans
Production builders (Lennar, D.R. Horton, KB Home) offer in-house financing with attractive incentives — rate buydowns, closing cost credits, design center upgrades. These can be excellent deals, but always compare with outside lenders. Builder financing is often competitive but not always the best option.
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