Custom Construction Loans

You've been sketching this house on napkins for three years. You know the kitchen. You know where the morning light hits. What you don't know is how to finance a build that doesn't exist yet — and every bank you've called wants to sell you something else.

Why Custom Construction Loans Are Their Own Animal

A traditional purchase mortgage funds a house that already exists. A lender can appraise four walls, pull comps within a mile, and write a check. A custom construction loan has to fund a house that only exists on paper — the appraisal is a projection based on plans and specs, the money has to release in stages as the build progresses, and the lender carries the risk that the project finishes on budget.

That's why most retail banks don't offer them, and why the ones that do often force you through two separate closings: one for construction, one for the permanent mortgage. Two appraisals. Two sets of closing costs. Two underwriting reviews six months apart, by which point your income, credit, or the housing market could have changed.

The One-Time Close (OTC) Construction Loan we originate through NEXA Mortgage's wholesale lender network solves this with a single closing. One underwrite. One appraisal of the completed home. The loan funds the build in draws and automatically converts to your permanent mortgage the day you receive the Certificate of Occupancy.

The Five Real Fears Custom Home Buyers Bring to Us

1. Cost overruns. "What if the build runs 20% over budget? Will the loan cover it?"
2. Builder trust. "My builder is great, but how do I know the bank will work with him?"
3. Rate risk. "Rates moved up 1.5% during my neighbor's build. How is mine protected?"
4. Appraisal gap. "What if the appraisal comes in under what I need to borrow?"
5. Draw delays. "I've heard construction loans sit in limbo between draws. I can't have my framer walk off."

The OTC structure addresses all five. Contingency is built into the budget. Builder approval happens once, up front, through a structured review — not surprise-rejected at draw #3. Rate protection options (extended locks) are available. The appraisal is tied to the finished-home value the bank commits to up front. And draws run on a predictable schedule coordinated with your builder's pay application.

How an OTC Custom Construction Loan Is Structured

During the build, you pay interest only on the funds that have been drawn — not the full loan amount. That means your monthly carrying cost in month 2 (foundation poured, ~15% drawn) is a fraction of your eventual permanent payment. As draws advance, the interest-only payment grows; by final draw, you're paying interest on the full balance for a month or two before the permanent mortgage kicks in.

Try it: the OTC Interest-Only Construction Payment calculator lets you model the payment curve month by month.

Project Budget Stack — Where the Money Actually Goes

Custom home buyers consistently underbudget soft costs (architecture, engineering, permits, utility hookups, builder overhead) and contingency. A realistic custom build stack looks like:

• Land: 15–30% of total project cost
• Hard costs (construction): 55–70%
• Soft costs: 8–15% of hard costs
• Contingency: 10–15% of hard costs (non-negotiable — every experienced builder tells you to carry it)

Use the calculator above to build your stack, then share the output with your builder. If your builder balks at a 10% contingency, that's a signal worth discussing with your loan officer before you commit.

Builder Approval — What the Lender Reviews

Your custom builder will be vetted once, up front, through a structured review that typically includes:

• State licensure + liability / workers-comp insurance certificates
• Three completed custom-home references (addresses, not just names)
• Financial statement demonstrating capacity to carry the build
• Signed construction contract with fixed or GMP pricing
• Draw schedule aligned to AIA G702/G703 pay applications

Owner-builders are eligible on primary residences under conventional OTC guidelines with additional documentation. If you're not a licensed contractor but want to self-manage, talk to a loan officer early — the path exists but needs planning.

Timeline From Application to Move-In

• Weeks 0–4: Application, borrower + builder underwriting, appraisal of the proposed finished home
• Weeks 4–6: Conditional approval → clear-to-close → single closing
• Months 1–9 (typical): Build phase with scheduled draws (often 5–7 draws against the AIA schedule)
• Final draw + CO: Loan auto-converts to permanent mortgage. No re-qualification. No second closing.

Who the OTC Custom Construction Loan Fits

• Primary residence, second home, or 1-unit investment property
• Conventional OTC (Fannie/Freddie eligible) or VA OTC for qualifying veterans
• Minimum credit score typically 680 (higher for jumbo or lower down)
• Down payment as low as 5% conventional, 0% VA (on qualifying scenarios)
• 48-state licensed — Homestead Capital Partners NMLS #2587985 via NEXA Mortgage LLC NMLS #1660690

Where to Go Next

If you already own the lot, read the Land Owner Construction Loans breakdown — your existing lot equity often counts as down payment. If this is your first custom build, start with First-Time Builder Loans for process expectations. If you're replacing an existing structure, see Tear-Down Rebuild Loans. And for the full product page with every program variant, visit the OTC Construction Loan product page.

Homestead Capital Partners NMLS #2587985 | NEXA Mortgage LLC NMLS #1660690 | Licensed in 47 states (excluding NY and GA). Equal Housing Lender. Content is informational and not a commitment to lend. All loan approvals are subject to underwriting, appraisal, title, and credit review. Program features, eligibility, down-payment, reserve, and LTV requirements are verified against United Wholesale Mortgage (UWM) product guides and Reveal Lending non-QM guidelines. Not all applicants will qualify. Rates, points, and terms are not quoted in this article and require a written loan estimate under TILA/Reg Z prior to application.