# What I Wish More Homebuyers Knew Before Financing a New Construction Home By Charles Stuart Kiehne (@charlesstuartkiehne) · Published 2026-09-21 Canonical: https://voce.com/@charlesstuartkiehne/construction-to-permanent-loan-homebuyers-2frl0t --- Building a home can be exciting. You get the opportunity to choose the property, floor plan, finishes and features that fit the way you want to live. But financing a home that hasn't been built yet is different from getting a mortgage on an existing house. After more than 25 years in mortgage lending, one of the things I've learned is that borrowers are usually better prepared when the financing conversation happens early—before they finalize plans with a builder or make major decisions about the project. Here are several things I wish more homebuyers knew before financing a new construction home. ## 1\. Construction Financing Isn't the Same as a Regular Mortgage With a typical home purchase, the house already exists. The lender evaluates the borrower, the property is appraised and the loan closes. Construction financing has additional moving parts because the home still needs to be built. Depending on the loan structure, the lender may need to review the builder, construction contract, plans, specifications, budget, appraisal and other project details. Funds for construction are also generally released in stages, often referred to as **draws**, as work is completed. That makes preparation especially important. ## 2\. Talk to the Lender Before You Finalize the Project One of the biggest mistakes I see is waiting too long to discuss financing. A borrower may already have a builder, plans and a budget before determining how everything fits with the available financing. I prefer to have the conversation earlier. We can look at questions such as: - Do you already own the lot? - Is there an existing loan on the land? - How much do you expect construction to cost? - What does the builder's contract include? - How much money are you planning to contribute? - What will the completed home likely be worth? - How will your income, assets and debts affect qualification? You don't necessarily need every detail finalized before speaking with a lender. In fact, that is often the point of starting early. ## 3\. The Value of the Finished Home Matters A construction appraisal is different from simply appraising a house that already exists. The appraiser may evaluate the plans, specifications and proposed improvements to develop an opinion of what the property should be worth **when construction is complete**. That completed value can be an important part of determining the financing structure. This is one reason I encourage borrowers to avoid assuming that construction cost and final appraised value will automatically be the same. They aren't necessarily. ## 4\. Owning the Land May Change the Financing Picture Some borrowers already own their building lot before they contact me. Others are trying to purchase the land and finance construction at approximately the same time. Those are different situations. If you already own the land and have equity in it, that equity may potentially factor into the overall financing structure, depending on the loan program and circumstances. That's worth discussing early because borrowers sometimes assume they'll need to approach the project exactly the same way as someone who doesn't already own the property. ## 5\. Understand How Construction Draws Work The entire construction budget typically isn't handed to the builder at closing. Instead, money is generally released during construction as specified stages of work are completed. The exact process varies by lender and program, but draws might correspond with milestones such as site work, foundation, framing, mechanical systems and later stages of completion. Borrowers should understand how the draw process works before construction begins and make sure their builder understands it as well. Clear expectations can prevent unnecessary confusion during the project. ## 6\. The Builder Is Part of the Process Too Your qualifications are important, but construction lending isn't only about the borrower. The lender may also have requirements involving the builder and project documentation. That's why choosing a builder based solely on price isn't always the best approach. Experience, documentation, contracts, insurance and the ability to work within a lender's construction process can all matter. If you already have a builder in mind, bring that information to the financing conversation. ## 7\. Changes During Construction Can Affect the Budget It's very easy to upgrade things when you're building a home. A different countertop doesn't seem like much. Neither does upgraded flooring, additional lighting, better appliances or another feature you've always wanted. But change orders can add up quickly. I encourage borrowers to build some financial breathing room into their plans rather than structuring the project around the assumption that every dollar will go exactly according to the original estimate. A beautiful home isn't much fun if completing it creates unnecessary financial stress. ## 8\. A Construction-to-Permanent Loan Can Simplify the Financing One option borrowers may encounter is a **construction-to-permanent loan**. Instead of treating construction financing and the final mortgage as completely separate transactions, this type of financing is designed to transition from the construction phase into longer-term mortgage financing once the home is completed and applicable requirements have been satisfied. The details vary by program, so borrowers should understand the loan structure, interest-rate provisions, closing costs and conversion process before proceeding. For the right project, it can provide a more streamlined path from an empty lot to a completed home. ## Start With the Financing, Not Just the Floor Plan When people decide to build, it's natural to start thinking about the house—the kitchen, bedrooms, garage, finishes and where everything will go. I encourage buyers to spend some time thinking about the financing structure just as early. A conversation before the project is fully committed can help identify potential issues, establish a realistic budget and give the borrower and builder a clearer understanding of how the financing will work. If you're considering building a home in Maryland or another area where I'm licensed, I'm happy to talk through the financing side of the project and help you understand the options that may be available. **Stuart Kiehne** President | Mortgage Loan Officer Redwood Mortgage Services NMLS #92008 [www.Redwood-Mortgage.com](http://www.Redwood-Mortgage.com) _All loans are subject to approval. Program availability, terms and qualification requirements may vary. Equal Housing Lender._