first time home buyer construction loan guide and basics

What this financing covers

A construction loan for a first home can fund land, permits, materials, and labor, then convert into a traditional mortgage after the build. Lenders release money in stages, called draws, tied to inspections, so you only pay interest on funds already disbursed.

How the process usually works

You begin with preapproval, submit a detailed budget and timeline, and choose a licensed builder. Expect a higher down payment than a resale purchase, though some programs for first-time buyers reduce it with grants or down payment assistance. Rate locks may be longer, and contingencies for delays matter.

What to prepare

• Clear, itemized construction plan and fixed-price contract
• Updated credit, income, and reserves to cover overruns
• Builder credentials, insurance, and references
• Contingency fund of 5–10% for surprises
• Proof of permits and site readiness

Smart tips

Compare one-time-close versus two-close options, ask about conversion fees, and verify draw schedules in writing. Keep communication tight with your builder and lender; small changes ripple through cost and time. Finishing strong means tracking invoices, documenting inspections, and protecting your rate before the last draw.