Financing · Montgomery County · Houston
Construction Financing Explained, Start to Finish
That is the whole shape of it. The rest of this post covers the two loan types, the order of events, and the four places we see buyers lose weeks.
The two loans you will be offered
One-time close. You close once. The loan covers construction, then converts to a permanent mortgage when the house is done. You pay one set of closing costs and lock your terms up front. The trade-off is that the lender underwrites everything at the start, including the builder, the contract and the finished home's value, so you need your decisions made earlier.
Draw, or construction-only. The lender releases money in stages as work is inspected. You usually pay interest only while building, then refinance or pay off the balance with a separate mortgage. The trade-off is a second closing, a second round of approval and the risk that rates or your finances look different when the house is done.
Neither is better in the abstract. A one-time close suits a buyer who knows the plan and the builder. A draw loan suits a buyer who still has choices open, or who is paying part of the build in cash.
What the lender looks at
A construction lender is lending against a house that does not exist yet. So the file is bigger than a normal mortgage file. Expect to produce:
- You. Income, credit, assets and a down payment. If you own the lot outright, lenders commonly count it toward your equity. Ask each lender how they value it.
- The lot. Ownership, survey, access, and utilities. Flood zone matters here because it can change insurance and what the lender requires.
- The builder. Lenders approve the builder, not just the buyer. Licensing, insurance, track record and financials are reviewed.
- The plans and budget. Signed contract, full plans, specifications and a line-item cost breakdown.
- The appraisal. The appraiser values the finished home from the plans. If the number comes in under the budget, you cover the gap.
The order of events
- Talk to a lender first. Before you pick a builder. The loan type and your budget cap shape every other choice.
- Check the lot. Flood zone, utilities and access decide site cost, which decides your budget.
- Pick a builder and sign the contract. The lender needs it.
- Submit the package. Plans, specs, budget, builder file.
- Appraisal and underwriting.
- Close. Then permits, site work and the first draw.
Why the lot comes before the loan
Site cost is the line that surprises buyers most, and it is set by the parcel. Builder Connect holds county parcel data on every vacant lot in Montgomery County. For your lot we can show the flood zone, the utility status, the lot size and what is being built nearby. A report for your lot reads like this:
{{flood_zone}} · {{utility_status}} · {{acres}} acres · {{nearest_permits_1mi}} permits within one mile
Take that to your lender and your builder together. A lot on septic with no water line costs more to prepare than a lot with sewer at the street, and the lender needs the budget to say so.
Where it goes wrong in Montgomery County
1. The budget leaves out site work. The house price is not the project price. Driveway, culvert, septic or tap fees, clearing and fill sit outside many headline numbers. For a typical Montgomery County lot, site work runs [RANGE TO BE SET BY JACOB]. Get it in writing before you apply.
2. You choose the builder after you choose the loan. Some lenders will not work with certain builders, and some builders do not take certain loan types. Check both directions early.
3. The appraisal comes in low. Custom homes on acreage have few comparable sales. Ask your lender how they handle a thin comp set before you commit.
4. Changes after closing. On a one-time close, a change order can mean lender sign-off and a re-priced budget. Lock selections before the file goes in. This is the main cost of the one-time close structure, and it is a real one.
Who pays whom, and how long it takes
Draw loans pay the builder in stages after inspection, so the builder carries some cost between draws. That is normal. What you control is speed: the faster your package is complete, the faster underwriting moves. Timelines depend on the lender and are a question for them.
If you are paying cash in stages instead of borrowing, the same logic holds. Fix the budget and site costs first, then agree a payment schedule tied to completed work, not to dates.
What to do this week
- Call a lender that does construction loans and ask which type fits you.
- Pull the flood zone and utility status for your lot.
- Get a written site-work number.
- Do not sign a builder contract until you know the loan will accept that builder.
Want the lot facts before you call a lender?
We represent you, the buyer, and we can match you with a builder who works with your loan type. Call (346) 273-1143 or email jacob@builderconnect.net.
How we are paid: Builder Connect represents buyers. The builder pays Builder Connect's fee, and going direct to the builder does not lower your price. This post is general information, not financial or legal advice. Talk to a licensed lender about your own loan.