When the right home isn't on the market, a construction loan turns "nothing fits" into a floor plan, a builder and a move-in date. And you stay in the deal.
Why this matters to you
Every agent has a buyer like this: they've seen every listing in their price range, and nothing checks every box. Maybe they need a single-story layout, more land, a shop or a specific school zone. Maybe they already own a lot and don't know what to do with it.
Those buyers often stall out or drift away. A construction loan gives them another path, and it gives you a reason to stay involved. You can help with the lot search, connect them with builders you trust and keep the relationship going until they move in.
How a construction loan works
A regular mortgage pays for a finished home all at once. A construction loan pays for a home that doesn't exist yet, so the money goes out in stages as the house goes up. Here's the basic flow:
- Pre-qualify and pick a builderThe buyer talks with a loan officer about the plan and chooses a qualified builder. The builder goes through an approval process.
- Submit the planThe contract, plans and specs, and cost budget go to the lender. The home is appraised based on its finished value.
- Close and break groundThe lot purchase and construction financing can close at the same time if the buyer doesn't own land yet.
- Build in drawsAs each stage is finished, from foundation to framing to final touches, an inspection is ordered and funds are released to the builder. During construction, eligible borrowers may make interest-only payments.
- Move inWhen the home is complete, the loan becomes (or is replaced by) a standard long-term mortgage.
Construction loans aren't handed off to a third party. Legacy's dedicated in-house team underwrites, processes and manages draws for construction loans, so your buyer and their builder work with people who do this every day.
The rate can be locked at any point during the process, which helps buyers plan around a build that can take most of a year.
One-time vs. two-time close
This is the question your buyer will hear first, so it helps to know the difference. With a one-time close, the construction loan and the permanent mortgage are wrapped into a single loan. With a two-time close, there's a construction loan first and then a separate closing for the permanent mortgage when the home is done.
| Feature | One-Time | Two-Time |
|---|---|---|
| One closing and one set of closing costs | ✓ | — |
| Rate capped at the construction closing | ✓ | — |
| FHA option | ✓ | — |
| Conventional option | ✓ | ✓ |
| Jumbo option | — | ✓ |
| Room to raise the loan amount for upgrades during the build | — | ✓ |
| In-house construction underwriting and processing | ✓ | ✓ |
Neither one is better for every buyer. A one-time close is simpler and gives more certainty up front. A two-time close gives more flexibility for larger loans and mid-build changes. The loan officer will help your buyer weigh the trade-offs.
What can be financed
◆Loan types
- Conventional
- FHA (new)
- Jumbo
- Non-QM, for self-employed and non-traditional income
◆Property types
- Single-unit site-built homes
- Planned unit developments (PUDs)
- Acreage tracts, within program limits
- New manufactured homes on a permanent foundation (new)
Primary residences and vacation homes can both qualify, depending on the program. If your buyer has land already, the equity in that lot may count toward their down payment.
The builder side
Every construction loan needs an approved builder. If your buyer already has someone in mind, get them talking to the loan officer early, because builder approval takes some time. The builder typically provides:
- A builder application with a bio or resume
- References from past clients, vendors and subcontractors
- State license and registration, W-9 and wiring instructions
- Proof of general liability and workers' compensation insurance
- For each project: the signed contract, plans and specs, a cost budget, builder's risk insurance and permits
Once the loan closes, the builder requests draws as each stage is finished, submits invoices and lien waivers, and gets paid after each inspection. That structure protects your buyer, and builders appreciate knowing exactly how and when they'll be paid.
Agent tip: Have builders you want to work with more? Let's connect and talk strategy.
Spot the buyer who should build
- "We've seen everything and nothing feels right."
- They own land, inherited land or are eyeing a lot.
- They need something specific: single-level living, accessibility features, room for multiple generations, a shop or acreage.
- They've lost out on new-build inventory and assume custom is out of reach.
- They're curious about manufactured homes but don't know how financing works.
Try one of these to open the conversation:
You don't have to be a construction expert. You just have to know it's an option, and who to call when a buyer needs it.
For educational purposes only. This is not an offer to lend or a commitment for financing. All loans are subject to credit approval, underwriting guidelines and program eligibility. Construction financing requires approved builder participation, plans, specifications, cost breakdowns, draw schedules and required inspections. Conversion to permanent financing depends on satisfactory completion of construction. Interest-only payments during construction are available only to eligible borrowers. Programs, terms and availability may change without notice, and not all applicants will qualify. Legacy Construction Lending is a brand of Efinity Mortgage, NMLS #1043983. Equal Housing Opportunity Lender.