Buying new construction adds a wrinkle that buying an existing home does not: at the time you commit, the house may not be finished — or even started. The financing has to bridge the time between breaking ground and moving in, and there are a few structures for doing it. All figures here are illustrative and subject to change; this is not a commitment to lend.
Builder financing vs your own loan
When you buy from a production builder, the builder often has a preferred lender and may offer incentives to use it. That can be convenient and sometimes comes with concessions, but it is not your only option. You are generally free to bring your own financing, and comparing the builder's offer against an independent loan is worth doing rather than assuming the in-house option is automatically best.
Construction-to-permanent loans
For custom builds, a construction-to-permanent loan finances the construction phase and then converts into your permanent mortgage once the home is complete. During construction, funds are released to the builder in draws as work progresses, and you typically pay interest only on the amount drawn. When the home is finished, the loan rolls into standard mortgage payments.
One-time close vs two-time close
A key distinction in construction lending is how many times you close:
- · **One-time close** — a single closing covers both the construction loan and the permanent mortgage. You lock the terms once, which reduces uncertainty and saves a second set of closing costs.
- · **Two-time close** — you close on a construction loan first, then close again on the permanent financing when the home is done. This offers flexibility but means two closings and exposure to wherever the market sits at the second one.
The lock-risk problem
Here is the planning issue unique to new construction: a build can take many months, and rates can move meaningfully over that span. If your rate is not locked, or your lock expires before completion, you face whatever the market offers when the home is ready. Some programs offer extended rate locks designed for construction timelines, sometimes with a float-down feature so you can benefit if rates improve. Understanding the lock terms — how long, what it costs, and what happens if the build runs late — is essential.
Appraisals on plans and specs
Because the home does not exist yet, the appraisal is based on the plans, specifications, and comparable completed homes. As construction progresses, draw inspections confirm that work is being completed before funds are released.
The Alliance take
We help buyers compare a builder's in-house financing against an independent loan and pay close attention to the lock terms, since a long build with an unprotected rate is the real risk in new construction.
Building or buying new construction? Reach out and we will walk the structure and the lock options.