Financing a build doesn’t work like a normal mortgage, and understanding the difference up front saves a lot of confusion.
One of the most common questions we hear is simply, “how do I pay for this along the way?” Construction financing has its own rhythm, and it’s worth knowing before you start. Here’s the plain-English version for both a new home and an addition. (We’re builders, not lenders — this is general information, not financial advice.)
New construction: land first, then the loan
For a new home, the usual path is that you close on and own the land first. Then a construction loan is put in place to fund the build. Rather than handing over a lump sum, the bank funds the project in stages.
The draw schedule
The heart of a construction loan is the draw schedule — a series of payments released as the work reaches defined milestones, each tied to a percentage of value. A typical rhythm: a draw when the foundation is in, another when the septic is installed, another at framing, another at rough-in, and so on. The bank usually inspects to confirm each stage is complete before releasing funds. During construction you generally pay interest only on what’s been drawn, and the loan converts to a permanent mortgage when the home is finished.
How an addition differs
For an addition or major renovation, you already own the home, so financing often looks different — a renovation loan, a home-equity line, or a cash-out refinance rather than a ground-up construction loan. The right tool depends on your equity and the project’s size.
Why it helps to line this up early
Financing takes time, and having it sorted means you’re ready to move when your plans and proposal are done — not scrambling at the finish line. It also gives you a firm budget to design within.
We can point you in the right direction
We work with BayCoast Bank on construction financing and are glad to make an introduction so you can understand your options. Getting the money side lined up early is one of the smartest things you can do before you build.
Ready to line up your build and your financing? Start your project and we’ll help you get both moving. Built right. Run like a business.