Financing Options for Your Custom Home
- BYOB Home Loans
- Feb 20
- 3 min read
Building your dream home is an exciting journey, but securing the right financing can be a complex process. Unlike purchasing a pre-existing home, custom home construction requires specialized financing solutions. At BYOB Home Loans, we’re here to help you understand your options and guide you through the process of funding your build.
Understanding Construction Loans
A construction loan is a short-term, interest-only loan designed to cover the cost of building a home. Unlike a traditional mortgage, construction loans release funds through draw disbursements to fund the construction. These loans typically last 6, 9, 12 to 18 months and convert into a permanent mortgage upon completion of the home.
Types of Construction Loans:
Construction-to-Permanent Loans [1-time close] – This loan covers construction costs and then converts into a traditional mortgage once the home is built.
The rate for the permanent loan is locked before construction begins.
All closing costs are paid up-front.
They have more strict builder approval requirements, and rarely allow a borrower to be their own builder.
Stand-Alone Construction Loans [2-time close] – The construction loan and permanent loan are provided by two separate companies.
The rate for the permanent loan is not locked until the home is 45-30 days out from completion.
The closing costs are split between the two closings.
A 2-time close loan structure offers the borrower and builder more flexibility for necessary adjustments during construction
Builder qualifications are less strict and borrowers can be their own builders!
Understanding Owner-Builder Construction Loans
An owner-builder loan is a unique financing option that allows you, as the homeowner, to act as your own general contractor. This loan covers the cost of building your home while giving you the flexibility to manage your budget, hire subcontractors, and oversee the construction process yourself.
How to Qualify for an Owner-Builder Loan
Lenders view owner-builder loans as a higher risk since they are funding a home that does not yet exist and require you to manage the project. To improve your chances of approval, consider the following:
Strong Credit Score – Most lenders require a credit score of 620 or higher for owner-builder loans.
Experience or a Solid Plan – If you have prior construction experience, it will strengthen your application. If not, a detailed construction plan, budget, and timeline are essential.
Down Payment – A down payment of 20–25% is often required to secure financing.
Debt-to-Income Ratio – Your overall debt should be manageable in relation to your income.
The Role of an Owner-Builder Loan in Your Home-Building Process
During construction, funds are distributed in draws, meaning you receive money in phases based on completed work. Inspections ensure that each stage meets agreed-upon benchmarks before the next disbursement. Interest is typically paid only on the funds used during construction, helping manage costs effectively.
Transitioning to a Permanent Mortgage
Once construction is complete, you’ll need to secure a traditional mortgage to pay off the balance of your owner-builder loan. This process may involve different interest rates and approval conditions, so it’s important to plan ahead.
Why Choose BYOB Home Loans?
At BYOB Home Loans, we specialize in helping owner-builders secure financing to bring their vision to life. Our team understands the challenges and rewards of managing your own build and is here to guide you through every step of the financing process.
Choosing to Be Your Own Builder
Building your own home gives you the freedom to create a space that fits your lifestyle, but securing the right financing is key to making it a reality. With an owner-builder loan from BYOB Home Loans, you can take control of your project and bring your dream home to life on your terms.
If you’re ready to explore your financing options, contact BYOB Home Loans today to get started on your owner-builder journey!
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