How to Finance New Home Construction: A Complete Guide

• Learn how Preston Trail Homes clients can finance builds through Texas Mortgage Associates via construction-to-permanent or separate construction and mortgage loans.
• Explore two main loan structures: stand-alone construction loans (two closings) and construction-to-permanent loans (one closing).
• Discover each step of securing financing—from selecting Preston Trail Homes as your builder to gathering loan documentation.
• See typical loan terms and current rate ranges in North Texas (note these vary with credit and market conditions).
• Understand minimum credit scores, down payment needs, and the role of land equity in approval requirements.

Building your dream home with Preston Trail Homes starts by choosing the right financing. Through our partner, Texas Mortgage Associates, you can access both short-term construction funds and long-term mortgages.

Whether you prefer one seamless construction-to-permanent loan or separate stand-alone financing, knowing the differences and requirements helps you plan your budget and timeline. Let’s walk through your best options for turning blueprints into your North Texas residence.

Construction loans differ from mortgages on existing homes. They fund each build phase—land purchase, foundation, framing, and finishes—through draw requests, ensuring lenders verify progress before releasing funds. During construction, most borrowers make interest-only payments; once the Certificate of Occupancy is issued, the loan either converts into a permanent mortgage or is paid off and replaced by a separate mortgage.

Construction-to-Permanent Loans

• Single closing: One application and one set of closing costs.
• Draw schedule: Interest-only payments on each draw during construction.
• Conversion: Automatically becomes your 15- or 30-year mortgage upon completion.
• Pros & Cons: Simplifies process but may have slightly higher initial rates due to the one-close convenience.

Stand-Alone Construction Loans

• Two closings: One for construction, one for permanent financing.
• Funding: Interest-only during build; full payoff required at Certificate of Occupancy.
• Flexibility: You can shop separate permanent mortgage rates, potentially lowering long-term costs.
• Trade-Off: Extra closing fees and paperwork.

1. Partner with Preston Trail Homes
   • Our reputation and quality plans streamline lender approval. Texas Mortgage Associates recognizes our 15+ floor plans and vetted subcontractor network, expediting underwriter reviews.
2. Choose Your Loan Structure
   • Decide between one-close (construction-to-permanent) or two-close (stand-alone). Your Preston Trail Homes sales counselor and TMA advisor will guide you based on your timeline and rate preferences.
3. Gather Documentation
   • Provide personal financials (tax returns, pay stubs, bank statements), detailed construction plans, and the signed Preston Trail Homes purchase agreement.
4. Submit Application & Underwriting
   • TMA evaluates credit (minimum ~620), debt-to-income ratio, and land equity. Verified builder credentials and phase-by-phase budget vetting ensure smooth approval.
5. Secure Insurance
   • Purchase builder’s risk and homeowners insurance before closing to protect against construction delays or damages.

Rates subject to change; final terms depend on credit profile, loan program, and market conditions.

• Credit Score: Most lenders, including TMA, look for a minimum of 620; 680+ may qualify you for the best rates.
• Down Payment & Equity: Expect 5%–20% down depending on loan type. Owning your lot outright or having substantial equity can reduce cash-out requirements.
• Debt-to-Income (DTI): Lenders prefer DTI under 43%; lower ratios strengthen your application.
• Builder Credentials: Preston Trail Homes’ track record and pre-approved plans simplify the verification process.

By leveraging Preston Trail Homes’ partnership with Texas Mortgage Associates, you gain tailored guidance through each financing step—minimizing surprises and keeping your project on schedule. Whether you choose a seamless construction-to-permanent loan or prefer rate-shopping with a stand-alone construction loan, our team is ready to help you secure the right terms.

Have more questions or need personalized guidance? Reach out to our team today—we’re always happy to help!

How do I manage construction delays in loan terms?

Construction delays can be costly, affecting your loan terms, interest payments, and the construction phase. To mitigate challenges, consult your lender immediately to explore flexible repayment solutions or extensions, especially if delays stem from unforeseen circumstances. Communication prevents penalties related to exceeding loan terms.

Can construction loans be used for land purchase?

Yes, construction loans often cover land purchase costs alongside building expenses. If not, a land loan—another type of loan—may be required. Upon building completion, the construction loan transitions into permanent financing to streamline borrowing for the entire real estate project.

What happens if the project exceeds the initial budget?

Cost overruns require additional financing options. Borrowers can explore increasing the loan amount through lender approval or securing supplementary loans. Communicating budget changes with your lender mitigates risks of halting construction due to financial shortfalls. Always budget realistically to avoid complications.

Are there options for refinancing a construction loan?

Yes, borrowers can refinance construction loans into permanent loans using favorable terms, lowered interest rates, and extended payment schedules. Refinancing ensures affordability while transitioning into long-term financing plans, especially for projects with rising costs or lengthened building timelines.