How does financing a new build actually work?

Two structures, two experiences

With most production builders, the builder carries the construction cost. You sign a purchase agreement, put down a deposit, and close a single ordinary mortgage when the home is finished.

With a custom build on your own lot, you typically use a construction to permanent loan. The lender advances funds in draws as work is completed, you pay interest only on what has been drawn, and the loan converts to a standard mortgage at completion.

The rate lock question

A build takes months, and rates move. Extended locks exist for exactly this reason, often covering six to twelve months, sometimes with a float down feature if rates improve.

An extended lock usually has a cost. Weigh that cost against the payment difference a rate move would create. On a long build, certainty is frequently worth paying for.

Questions to ask before you sign

Builder contracts are written by builders. Read the financing sections closely and ask directly about the following.

• What are the allowances, and what happens if selections exceed them?
• Is there an escalation clause for materials?
• What is the deposit schedule, and is it refundable and under what conditions?
• What is the expected completion window, and what are the remedies if it slips?
• Am I required to use the builder's preferred lender, and what do I give up if I do not?