Insights / House building loans: every way to finance a custom home
November 9, 2026
House building loans: every way to finance a custom home
Building a custom home comes down to five financing paths: a one-time close construction loan (Conventional up to 95% LTV, FHA 96.5%, VA 100% financing), a two-time close loan that splits construction and the permanent mortgage into separate closings, a land loan now with construction financed later, a HELOC against your current home to fund the build, or cash with delayed financing to recoup equity after the house is done. Each one trades flexibility for cost and speed in a different place.
Most people searching for house building loans assume there's one product called a "construction loan." There isn't. There are five distinct structures, and picking the wrong one for your situation means re-qualifying twice, carrying two payments longer than you need to, or losing the lot you already found while you wait on a builder's contract. Here's how each one actually works.
Jesse's take: I've had the opportunity to work with clients who are building manufactured homes, modular homes, and custom homes, and we actually have loan amounts that go up to $20 million on construction to PERM. The one thing to consider and bear in mind during this entire process is that it's going to be a process that will require you to spend time, and really stay on top of everybody, including your general contractor. So, these loans in the process of building a home can be time-consuming. I can guarantee that something, at least one thing, will go wrong, and you'll have to be nimble and make adjustments. But the feedback from my clients has been that it's worth every penny; it's worth every minute of time spent. Because most of the time you'll be building equity, and also you'll be getting a home that's made exactly the way that you want it to be made. But these programs are available, and they are a fantastic tool to use in a market where you can't find anything that meets your needs.
What is a one-time close construction loan?
A one-time close (sometimes called construction-to-permanent) rolls the construction loan and the permanent mortgage into a single closing. You close once, before the first shovel goes in the ground, and the loan converts automatically to a standard mortgage once the builder finishes and the certificate of occupancy is issued. You don't requalify, don't pay a second set of closing costs, and don't face the risk of your financial picture changing mid-build and tanking your second approval.
This structure exists across loan types. Conventional one-time close loans go up to 95% loan-to-value. FHA's version, detailed on our FHA construction loan page, allows financing up to 96.5% of the appraised value, the same minimum down payment FHA uses for existing homes. VA one-time close construction loans go to 100% financing for eligible veterans and service members, same as a standard VA purchase. All three require the builder to be approved and the plans and specs locked in before closing, since the appraisal and the underwriting are based on the finished home, not the lot.
One-time close fits people who already have a builder, a set of plans, and a contract price, and who want to lock their financing once and move forward. It's the lowest-hassle path if your project qualifies. Run your numbers against a target budget with the One-Time Close calculator before you commit to a builder's contract, since the construction budget and the permanent loan amount need to line up from day one.
How does a two-time close construction loan work?
A two-time close separates the build from the permanent mortgage into two distinct loans and two distinct closings. The first loan funds the land purchase and the construction draws, usually interest-only during the build. When the home is finished, you apply again for a permanent mortgage that pays off the construction loan.
The trade-off is flexibility at a cost. Because the two loans aren't tied together, you can change your mind about the permanent loan type, shop lenders again at the end, or adjust the loan amount if the appraised value comes in differently than planned. But you're underwritten twice, you pay two sets of closing costs, and your approval for the permanent loan isn't guaranteed just because the construction loan funded. If your income, credit, or debt picture shifts during the months it takes to build, the second closing can get harder, not easier.
Two-time close tends to fit custom projects where the scope, the builder, or the budget isn't fully locked down yet, or where the borrower wants the option to change financing strategy once the home is complete. Builders and larger custom projects sometimes route through bridge and construction financing structured this way when the project doesn't fit a standard residential one-time close box.
Can you buy land now and build later?
Yes. A land loan (sometimes called a lot loan) finances the raw land or buildable lot on its own, with construction financed separately once you're ready to break ground, often a year or more later. This is the path for buyers who found the right lot before they found the right builder, or who want to secure land in a competitive area before plans and permits are finalized.
The trade-off is that land loans are underwritten and priced differently than home loans, since raw land has no structure to secure the debt and less liquid resale value than a finished house. Expect a larger down payment requirement and a shorter loan term than you'd see on a home purchase. You'll also need a separate construction loan application later, which means two underwriting events instead of one, similar to a two-time close. Land-now, build-later makes sense when timing, not structure, is the constraint: you need to act on the lot before the rest of the project is ready.
Can a HELOC on your current home fund a new build?
Yes, if you own your current home with enough equity to support it. A home equity line of credit lets you draw funds as construction costs come due, paying interest only on what you've drawn, and you can use it to cover the land, the build, or both without touching a separate construction loan product at all.
The appeal is simplicity: no construction-specific underwriting, no draw inspections run by a construction lender, and you keep your existing first mortgage untouched if it has terms worth keeping. The trade-off is that your current home is the collateral, not the new build, so your HELOC limit is capped by your existing equity, not by the new home's finished value. Once the new home is done, most people either pay the HELOC down with proceeds from selling the old home or refinance the new home into a permanent mortgage and use part of it to retire the HELOC balance. This path fits homeowners who have substantial equity built up and don't want to go through two rounds of construction underwriting.
Does cash plus delayed financing make sense for a custom build?
It can, for buyers who have the liquidity to fund the entire build out of pocket and want to recover some of that cash afterward. You pay for the land and the construction in cash, and once the home is complete, you refinance it as a cash-out transaction to pull equity back out, often called delayed financing. Because there's no construction loan in the picture, there's no builder-approval process, no draw schedule administered by a lender, and no risk of a mid-build requalification.
The trade-off is obvious: your cash is tied up for the full length of the build, which can run considerably longer than a typical purchase closing, and the money sits illiquid until the refinance funds. This path fits buyers, often self-employed borrowers or investors who've sold another property, who have the cash available and prefer to control the construction timeline without lender draw inspections slowing down the schedule. Anyone weighing this option against a Conventional or FHA one-time close loan should run the comparison on carrying costs versus liquidity before deciding, since the math changes based on how long the build takes.
Which construction financing option fits your situation?
| Option | Typical down payment / LTV | Who it fits | Main trade-off |
|---|---|---|---|
| One-time close (Conventional/FHA/VA) | Conventional to 95% LTV, FHA to 96.5%, VA to 100% | Buyers with a locked builder contract and finished plans | Plans and builder must be approved before closing; little room to change scope mid-build |
| Two-time close | Set independently at each closing | Projects where scope, builder, or budget isn't fully locked | Two underwriting events, two sets of closing costs, permanent approval isn't guaranteed |
| Land loan now, build later | Larger down payment than a home purchase, shorter term | Buyers securing a lot before plans or builder are ready | Separate construction loan still needed later; land financed on its own terms |
| HELOC on current home | Based on existing home equity | Homeowners with significant equity who want to avoid construction underwriting | Draw limit capped by existing equity, not the new home's finished value |
| Cash plus delayed financing | No loan during construction; refinance after completion | Buyers with full liquidity who want to control the build timeline | Cash is tied up for the full build period before refinance funds |
A few of these paths overlap depending on what you already own. If you're a first-time buyer building your first home, a Conventional or FHA one-time close is usually the straightest line. If you already have equity in an existing property, it's worth comparing a HELOC against a traditional construction loan before you decide, since the equity you already hold can sometimes replace the need for a separate construction product entirely.
Frequently asked questions
What's the difference between a one-time close and a two-time close construction loan?
A one-time close combines the construction loan and the permanent mortgage into a single closing with one underwriting event, while a two-time close uses two separate loans and two separate closings, one for construction and one for the permanent mortgage once the home is finished.
Can you get a construction loan with less than 20% down?
Yes. One-time close construction loans follow standard program minimums: Conventional construction-to-permanent loans go up to 95% loan-to-value, FHA allows up to 96.5%, and VA allows up to 100% financing for eligible borrowers, so a 20% down payment isn't required across the board.
Do I need to already own the land to get a construction loan?
No. Most one-time close and two-time close construction loans can finance the land purchase along with the build, as long as the lot, the builder, and the plans are all part of the loan file before closing. If you already own the land outright, that equity typically counts toward your down payment.
Is a HELOC a good way to pay for a custom home build?
It can work well if you already own a home with substantial equity, since a HELOC lets you draw funds as construction costs come due without going through separate construction-loan underwriting. The limitation is that your available credit is tied to your current home's equity, not the new home's finished value.
What is delayed financing on a construction project?
Delayed financing is a cash-out refinance done shortly after you've paid cash for a home's construction, letting you recover part of your cash outlay once the home is complete and appraised. It's used by buyers who had the liquidity to fund the build without a construction loan but want some of that capital back afterward.
Does a land loan count as a construction loan?
No. A land loan only finances the purchase of the lot itself and typically carries a larger down payment and shorter term than a home loan, since raw land has less collateral value than a finished house. Construction financing is arranged separately, often once you're ready to start building.
Which construction loan option has the fewest closings?
A one-time close construction loan has the fewest closings, since the construction phase and the permanent mortgage are handled in a single closing instead of requalifying and closing again once the home is finished.
Can I switch loan types in the middle of building a custom home?
It's difficult once a one-time close loan has funded, since the permanent loan terms were set at the original closing. A two-time close structure gives you more room to change direction, since the permanent mortgage is a separate application made once construction is complete.
Reviewed by Jesse Gonzalez, NMLS #278103
This article is for general information only and is not a loan approval, rate quote, or financial advice. Program guidelines change and every file is different, so talk to a licensed loan officer about your scenario. True Blue Lending Corporation, NMLS #2380218. Equal Housing Opportunity.