Everything You Need to Know About New Construction Loans

Building a home from scratch is one of the most exciting—and challenging—adventures in real estate. It’s a chance to create something uniquely yours, from the floor plan to the finishes. But before you can start daydreaming about kitchen islands and backyard views, you’ve got to understand how financing works for new construction. It’s a bit different from your standard home loan, and it’s essential to know what you’re signing up for before you break ground.

What is a New Construction Loan?

New construction loans are short-term loans designed to cover the cost of building a home, typically lasting anywhere from six to 12 months. During this period, the lender will release funds incrementally, usually in line with the progress of the build. Once construction is complete, the loan usually converts into a standard mortgage, either for 30 or 15 years.

The key takeaway here? New construction loans are specialized, and they’re not as readily available as your traditional mortgage. Often, community banks and lenders familiar with the local market are your best bet for securing financing.

Down Payments: Be Prepared to Invest Upfront

When it comes to construction loans, lenders typically want to see more skin in the game. Most banks offering these loans will require a down payment of at least 15-20%. So, if you’ve been stockpiling savings, now’s the time to put them to work. If not, you’ll need to strategize, whether that’s through saving more aggressively or looking into additional financing options.

Interest Rates: A “Prime-Plus” Setup

Construction loans often come with a higher interest rate compared to standard home loans. You’ll likely see a “prime-plus” rate, meaning the rate will be a bit higher than the prime short-term lending rate. For instance, if the prime rate is 8%, your construction loan might sit around 9.25% to 9.5%. Once the home is complete and the loan converts into a mortgage, you’ll usually fall in line with the going market rates for standard mortgages.

Bridge Loans: Helping You Make the Leap

Sometimes, timing just isn’t on your side when you’re building a new home. You might be ready to buy but haven’t sold your current home yet—and that’s where bridge loans come in. These short-term loans, typically lasting six to nine months, are designed to help you cover any financial gaps.

Say you need $50,000 for a down payment on your new home, but your current house is still on the market. With a bridge loan, a lender can use the equity in your existing home as collateral, allowing you to make that down payment. Once your current home sells, you’ll use the proceeds to pay off the bridge loan.

It’s important to note that bridge loans usually come with a higher interest rate than a regular mortgage—often two percentage points higher. Plus, if your home doesn’t sell within the expected time frame, you could find yourself in a financial squeeze. So, think of bridge loans as a short-term fix, not a long-term solution.

Land and a Plan: Getting Started on the Right Foot

If you already own land, congratulations! You’re ahead of the game. Your next step is to meet with builders and architects to ensure that your home design fits the plot. Trust me, you don’t want to design your dream home only to find out it won’t fit, meet setback requirements or somehow work with the property you’ve purchased.

For those who don’t own land yet, some builders can help you find a suitable lot. Alternatively, reach out to me because we know the market and can guide you to the right spot. Either way, make sure the design and the land work in harmony.

Consider the Resale Value: Think Short-Term, Even If You’re Staying Put

When you’re building a custom home, it’s easy to think you’ll live there forever. But life happens, and eventually, you may need or want to sell. Keep resale value in mind as you plan. You’ll want to match the price range and size of your home to others in the neighborhood, so it doesn’t stick out as either too expensive or too large. After all, you don’t want your custom creation to be a hard sell down the road.

Avoid Delays and Cost Overruns: Plan, Plan, Plan!

Finally, let’s talk about keeping your project on track and on budget. Every decision you make—from the flooring to the roofing—should be finalized before construction begins. The more planning you do upfront, the fewer surprises (and added costs) you’ll face along the way. Last-minute changes and material shortages can lead to delays, and trust me, no one wants to deal with ripping out something that was already built.

Bottom Line

Financing your new construction home can feel complex, but with the right preparation and understanding of your options, you’ll be in a much better position to make it happen. Whether you’re navigating the ins and outs of new construction loans, bridge financing, or simply figuring out how your dream home will fit on your plot of land, having a clear game plan—and the right team by your side—makes all the difference.

If you’re ready to explore new construction options in Shawnee or the surrounding areas, reach out to me, and let’s start building your dream home!

Ready to Build?

Don’t Miss This Prime Lot in Midtown Shawnee!

If you’re on the hunt for the perfect spot to build your next home, I’ve got an opportunity for you that’s hard to pass up. Right now, I’ve got a prime, level building lot available in Midtown Shawnee for just $50,000. In a neighborhood where new construction homes average around $350,000, this lot is an affordable entry point to craft something truly special.

Location, Location, Location

Nestled in an area with estate-quality homes, this high-value lot offers the perfect blend of accessibility and potential. There aren’t many lots like this available in the heart of town in Shawnee I-93 school district.

Why Shawnee? Why Now?

Shawnee’s Midtown area has long been a favorite for cachet and convenience. With home prices on the rise and limited land for new construction in town, this lot’s value is only going up. Whether you’re looking to build your personal dream home or develop a property that will attract buyers, this is the moment to make your move.

What Makes This Lot Stand Out?

This 50k price tag offers a unique chance to secure land and start building. The lot is primed and ready, and with the average new construction in the area selling around $350k, this could easily become your next best investment. High-value properties surround the lot, adding significant resale potential down the line.

Let’s Talk Details

The lot is already cleared and level, so you’re saving time and money on prep work. Plus, it’s located in a part of Shawnee where building opportunities are scarce—especially at this price.

Ready to take a closer look? Whether you’re a builder, developer, or someone looking to design a custom home, I’d love to help you explore how this lot could be the foundation of your next big project

Build Your Luxury Dream Home on a Prime 0.4-Acre Lot in Midtown Shawnee