Building Your Dream Home? Here's What You Need to Know About Construction Loans

At Legacy National Bank, we know that building a home from the ground up is one of the most exciting—and biggest—financial decisions you'll make. Whether you're starting with an empty lot or planning a major renovation, a construction loan could be the key to turning your vision into reality.

But how does a construction loan work, and how is it different from a traditional mortgage? Let’s break it down.

 

What Is a Construction Loan?

A construction loan is a short-term, specialized loan used to finance the building or major renovation of a home. Unlike a standard mortgage, which provides a lump sum at closing, construction loans are paid out in stages as the work is completed.

 

How Do Construction Loans Work?

• Draw Schedule: Instead of receiving all the funds at once, your builder receives payments (called "draws") at specific phases of construction—like foundation, framing, and finishing.

• Interest-Only Payments: During construction, you'll typically make interest-only payments on the amount disbursed. That helps keep costs manageable while the home is being built.

• Loan Conversion: Once the home is complete, the construction loan can often be converted into a traditional mortgage (a process called “construction-to-permanent” financing), or paid off with a separate mortgage.

 

What Do You Need to Qualify?

Like any loan, construction financing requires a solid financial foundation. Here’s what lenders generally look for:

• Strong credit score

• Stable income

• Detailed construction plans and budget

• Licensed and insured builder

• Down payment (typically 10–20%)

 

Benefits of Working With Legacy National Bank

At Legacy, we’re proud to offer local decision-making and personal guidance every step of the way. Our construction loan experts work directly with you and your builder to ensure a smooth process—from blueprints to move-in day.

 

Ready to Break Ground?

If you’re dreaming of building a home, we’re here to help you lay the financial foundation. Reach out to a Legacy National Bank loan officer today to learn more about your construction loan options.