If you have never built a custom home before, the financing is often more confusing than the construction itself. Before you talk to a lender, it helps to understand our full build process, because a construction loan is built around the same phases we walk every client through: design, permitting, foundation, framing, and finish-out. Here is how it actually works in Texas.
How Do Construction Loans Work in Texas?
A construction loan does not hand you a check at closing the way a regular mortgage does. Instead, the lender releases money in stages, called draws, as specific phases of the home get finished. You typically pay interest only on the amount drawn so far, not the full loan, so your payment grows as the house does. Most borrowers in North Texas use a construction-to-permanent loan, which starts as a short-term construction loan and then converts automatically into a standard 30-year mortgage once the home passes final inspection and you close. That single-closing structure saves you a second round of closing costs compared to financing the construction and the permanent mortgage separately.
What Is a Construction to Permanent Loan?
This is the loan structure most of our clients use, and for good reason. You close once, before construction starts, on a loan that covers both phases. During the build, you draw funds as work completes and pay interest only on those draws. Once the home is finished and passes its final inspection, the loan converts to a permanent mortgage automatically, usually at a rate locked at closing or adjusted to current rates depending on your lender's terms. The alternative is a stand-alone construction loan that you pay off in full once building ends, then separately apply and qualify for a new mortgage. That means two closings, two sets of closing costs, and a second underwriting review right when your finances are already stretched from the build. Almost nobody chooses that path once they understand the difference.
How Are Draws Scheduled on a Custom Home Build?
Draws are tied to completed phases, not calendar dates. A typical schedule runs something like: foundation complete, framing and dried-in, mechanical rough-in (plumbing, electrical, HVAC), insulation and drywall, and final finishes. Before your lender releases each draw, a third-party inspector confirms the work is actually done. We run an open-book budget with weekly cost-to-complete reporting on every project, which lines up naturally with how banks want draws documented, no surprises on either side about what has been spent versus what is left to build. On our typical custom homes, running $1.2M to $4M+ at $250 to $550+ per finished square foot, the draw schedule usually spans the full 12 to 14 month construction window, after 3 to 6 months of design and permitting that happens before the loan even starts drawing funds.
| Loan Type | How It Works | Closings | Best For |
|---|---|---|---|
| Construction-to-permanent | One loan, draws during build, auto-converts to mortgage | One | Most custom home buyers |
| Stand-alone construction loan | Pay off construction loan, then apply for new mortgage | Two | Buyers wanting to shop rates after completion |
| Owner-builder loan | Borrower acts as general contractor, no licensed builder of record | One or two | Rare, requires strong construction experience |
| Land + lot loan (prior to build) | Separate loan to purchase raw land before construction financing | Separate | Buyers who need to acquire acreage first |
What Down Payment and Credit Do Texas Lenders Expect?
Expect to put down 20 to 25 percent for a true custom construction loan, and expect your lender to check credit more strictly than they would for a standard mortgage, since the bank is underwriting a project that does not exist yet rather than an appraised, finished asset. A credit score above 740 gets you the best terms; most lenders set a hard floor around 680. The good news for a lot of our clients: if you already own your land free and clear, whether that is a lot in Weatherford or acreage out toward Aledo, the equity in that land often satisfies some or all of the down payment requirement, which is one more reason buying land ahead of your build makes financial sense. I cover land costs and the full project breakdown, land, design, construction, and finishes, in my cost breakdown post if you want the full picture before you talk to a lender.
What Can Go Wrong With Draws on a Custom Build?
The most common problem I see is a mismatch between the draw schedule in the loan documents and the real pace of construction. If your contract calls for a draw at "framing complete" but your lender's inspector has a stricter definition of complete than your builder does, you can end up with a trade waiting on payment while paperwork catches up. That is exactly why I ask every client to walk through the draw schedule with me and their lender before signing anything, so the trigger points in the loan match the trigger points in the construction contract. A second common issue is change orders. If you upgrade a selection mid-build and the cost shifts, that can throw off a draw that was already calculated against the original budget, so your lender needs updated numbers fast. I wrote a longer list of the exact questions to ask before signing, including how draws and change orders should work, in questions to ask a custom home builder before signing.
Does Financing Change If You Already Own the Land?
Yes, usually for the better. If you bought acreage years ago out around Springtown or Brock and are only now ready to build, that land typically counts as equity toward your construction loan, reducing or eliminating the cash down payment you would otherwise need. The lender still needs a current appraisal of the land and a clear title, and if you have well or septic infrastructure already in place, that adds value too. We handle a meaningful share of our builds this way, families who bought rural land first and financed the house itself once they were ready, which is part of why our acreage building process walks through site work and infrastructure financing alongside the house itself.
Texas law also treats your homestead differently than most states when it comes to liens for construction and home improvement contracts. The homestead protections and lien requirements are spelled out in Article XVI, Section 50 of the Texas Constitution, and any lender or builder working on your primary residence needs to follow those rules to the letter. The Consumer Financial Protection Bureau has also written about how poorly standard mortgage disclosures fit construction loans, which is worth a read before your first meeting with a lender, since the paperwork you get may not explain the draw process as clearly as it should.
What Should You Do Next?
- Talk to a construction lender before you talk to a builder, or at least in parallel, so you know your realistic budget before plans get drawn.
- Ask every lender directly whether their loan is construction-to-permanent or stand-alone, and get the draw schedule in writing before you compare offers.
- Bring your land into the conversation early if you already own it. The equity can change your down payment picture entirely.
- Walk through the draw schedule with your builder and lender together, before signing, so the trigger points match on both sides.
- Call me directly at (817) 736-6323 or schedule a free consultation if you want to talk through financing alongside the actual build plan. You can also browse homes we have completed for a sense of scope and finish level at different budgets.
I have been building custom homes in North Texas since 1995, over 100 of them, and I have sat in enough closings to know that the construction loan conversation is where a lot of families feel most out of their depth. It does not need to be complicated. Ask direct questions, get the draw schedule in writing, and make sure your builder and your lender are talking the same language before you break ground.
