Understanding Your Options: A Guide to New Construction Home Loans

New construction-to-perm loans work differently from traditional mortgages, which is why they can be so confusing for most buyers. Once you understand how they’re structured, the process becomes a lot less intimidating. 

Here’s what you should know about financing your new build, from our four decades of experience.

What Is a New Construction Home Loan?

A construction-to-perm loan is a short-term financing option used to fund the building of a new house for Build On Your Lot (OYL) construction. This loan type is specifically for buyers building a custom home on their own lot—buyers in a standard production community would use a traditional mortgage instead. 

Unlike traditional mortgages that pay for an already completed home, these loans cover the costs involved in constructing your home from the ground up:

• Lot or land
• Construction labor
• Building materials
• Permits
• Site preparations (land clearing, access, utility hookups, etc.)

It does not cover furniture, décor, or unrelated design fees.

Because the home hasn’t been built yet, lenders rely on detailed plans, budgets, and builder contracts to approve the loan. 

Once construction is complete, many buyers transition into a long-term mortgage through programs like construction-to-permanent loans. 

These loans for new home construction are ideal for buyers who want to create a personalized living space with a reputable builder.

TL;DR: A construction loan funds the build itself and releases money in stages as your new home takes shape.

How Construction-to-Perm Loans Work From Start to Finish

To understand how construction-to-perm loans work, it helps to picture the build happening in stages. 

Unlike a regular mortgage, where funds are disbursed at settlement, a construction loan releases money in “draws” tied to construction milestones, like laying the foundation or completing framing. 

Before each draw, an inspection confirms the work is complete. During construction, most lenders require interest-only payments based on the amount drawn so far, helping keep monthly costs manageable. When construction is finished, the loan typically converts into a long-term mortgage. 

This approach means your builder gets paid as work progresses while giving you predictable steps throughout the project.

Construction-to-Perm Loan Process

1. Pre-approval — Work with a Caruso preferred lender to get pre-approved before signing your contract. You’ll submit financial documents such as pay stubs, W-2s, and bank statements so your lender can confirm your budget and loan eligibility.
2. Contract/plans — Once pre-approved, you’ll sign a contract with Caruso Homes and finalize your floor plan, lot, and home specifications. Your lender will then open a formal loan application using the signed contract and builder plans.
3. Loan closing — At closing, you’ll sign the loan documents and the construction loan is officially funded. With a construction-to-perm loan, this single closing covers both the construction phase and your permanent mortgage, so there’s no second closing required later.
4. Draw schedule/inspections — Throughout the build, funds are released to Caruso in stages—called draws—tied to completed milestones like foundation, framing, and rough-ins. Before each draw is released, an independent inspector verifies that the work has been completed as planned.
5. Conversion to permanent mortgage — Once construction is complete and your home passes final inspection, the loan automatically converts to a standard long-term mortgage. Your monthly payment then shifts from interest-only during the build to a regular principal-and-interest payment.
   
   

TL;DR: Money is released in phases during the build, then turns into a regular mortgage once your home is complete.

Types of New Construction Home Loans (One-Time Close vs. Two-Close)

When comparing the best new home construction loans, most buyers start with two main options:

1. Construction-to-Permanent Loan (One-Time Close)
   This loan bundles everything into a single process. It funds the build and then converts into a long-term mortgage with one application and one closing. It’s simpler, reduces fees, and is the most common choice among Caruso On Your Lot buyers.
   
   

• Construction-Only Loan (Two-Close)
  This loan covers the build but requires a second mortgage once construction is complete. It can offer more flexibility, but it also means more steps, more paperwork, and potentially higher overall costs.

A knowledgeable lender can walk you through these options and help you choose the structure that fits your budget and timeline.

TL;DR: One-time close loans are simpler. Two-close loans offer flexibility but include more steps.

Requirements and Down Payment for a New Construction Home Loan

Qualifying for new construction home loans can be slightly more challenging than getting a traditional mortgage because lenders are financing a home that hasn’t been built yet. 

What Lenders Review

• Income
• Employment history
• Credit
• Debt-to-income ratio
• Savings. 

Down payments are often higher, typically 10% to 20%, depending on the lender and loan type. 

The national average 30-year mortgage rate as of May 14, 2026, was 6.36%, with the 15-year rate at 5.71%, giving buyers a baseline for evaluating new construction home loan rates. 

You'll need a pre-approval from a lender before you can sign a contract with your builder. You'll also need detailed plans and a signed contract, such as with Caruso Homes.

TL;DR: Requirements are a bit stricter for new home loans, but preferred lenders help you understand exactly what’s needed.

How Caruso Homes’ Preferred Lenders Simplify New Home Construction Loans

Building a home naturally leads to questions about financing, especially for buyers comparing loans for new home construction programs, including conventional options and VA new construction home loans. 

We work with preferred lenders who specialize in new home construction loans, which means they understand build timelines, draw schedules, and how to structure financing from start to finish. 

Because these lenders work with us regularly, communication is faster and smoother, giving you more confidence during the process. 

They also help buyers apply for new home loans early, clarifying affordability before any design decisions are made.

“Everyone thinks construction financing will be a headache. Then we break it down together, and they realize it’s way more predictable than they expected.”
-Jamison Mullen, Vice President of Production, Front Door Home Loans

TL;DR: Preferred lenders make financing clearer, faster, and designed around your build and budget.

Next Steps to Get a New Home Construction Loan With Caruso Homes

Before you fall in love with a plan or start adding finishes to your wish list, the best next step is to apply for new home loans through a Caruso preferred lender. 

Early pre-qualification helps you understand loan types, monthly payments, and how much home you can comfortably build. 

From there, you can explore Caruso Homes floor plans, find a lot if you don't already own one, and prepare for closing with confidence!

Whether you’re comparing new build home loans or evaluating long-term mortgage options, our financing partners can walk you through each step so you never feel like you’re navigating the process alone. Contact Team Caruso today to get started!

FAQs About New Home Loans

Is it harder to get a new construction loan?

New home construction loans require a bit more documentation because the home isn’t built yet, but most qualified buyers can secure one with solid income, credit, and a trusted builder. A preferred lender makes the process much smoother.

What is the minimum deposit for a construction loan?

Most lenders require a higher down payment than a traditional mortgage, often around 20%. Your exact amount depends on the loan program, the home you’re building, and whether you already own the land.

How do construction-to-perm loans work?

These loans release money in stages as your home is built. You pay interest only on what’s been used so far. When the home is finished, the balance automatically rolls into a long-term mortgage like any other new home loan.

What types of new home build loans can I choose from?

You’ll typically see construction-to-permanent loans (one closing), construction-only loans (two closings), and specialized options like VA new construction home loans for eligible buyers. Your lender will help you choose the best fit for your budget and timeline.

Are rates different for new construction home loans?

Rates are often slightly higher because the home is still being built, but they work similarly to any mortgage rate. As of May 2026, the average 30-year fixed rate was 6.36% (Freddie Mac), which gives buyers a helpful benchmark.

Can I apply for new home loans before choosing a builder?

You can get prequalified, but most lenders need your builder agreement and project details to finalize the loan. If you’re comparing loans for building a new home, getting prequalified early helps you understand your budget and next steps.