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Okay, so here's what happened this summer. A couple I know spent eight months searching for their perfect home in the Louisville area, only to watch three different properties get snatched up before they could even schedule second showings. Sound familiar? That's when they started asking me about building instead of buying.
According to the National Association of REALTORS® (2025), existing home inventory stood at just 3.3 months in December 2024, well below the historically normal 6-month supply (accessed 2025-10-29). Meanwhile, new home inventory sits at a healthier 7.4 months, based on the U.S. Census Bureau and Department of Housing and Urban Development (2025) August 2025 data (accessed 2025-10-29). That's one reason more people are considering the build-from-scratch route.
Let me simplify this for you, because the numbers can feel overwhelming at first. The median sales price of new single-family homes sold in August 2025 was $413,500, according to joint data from the U.S. Census Bureau and HUD (2025) (accessed 2025-10-29). But that's just the final price tag. What nobody tells you is how you actually get there.
Here's the human side of this: building a custom home means you're paying in stages rather than all at once. During construction, most borrowers make interest-only payments on what's been drawn so far. Think of it like paying rent while your house gets built, except you're building equity instead of just writing checks to a landlord.
Construction loans work differently than regular mortgages. At AmeriSave, we specialize in helping borrowers transition from construction to permanent financing once their home is complete. Here's what you're looking at:
Construction-Only Loans: These short-term loans typically last 6-18 months and cover just the building phase. You'll need to refinance into a traditional mortgage when construction wraps up, meaning two closings and two sets of fees.
Construction-to-Permanent Loans: Also called one-time close loans, these combine everything into a single mortgage. You close once, lock in your permanent rate upfront, and convert to regular mortgage payments when construction finishes. The Consumer Financial Protection Bureau (2024) notes these loans can save borrowers thousands in duplicate closing costs (accessed 2025-10-29).
FHA One-Time Close Construction Loans: These government-backed loans require as little as 3.5% down payment for qualified borrowers, according to HUD (2024) guidelines (accessed 2025-10-29). If you already own land, its equity can often cover that down payment requirement entirely.
VA Construction Loans: Eligible veterans and active service members can access 100% financing with no down payment required, based on Department of Veterans Affairs (2024) loan programs (accessed 2025-10-29).
USDA Construction Loans: For rural homebuyers who meet income requirements, USDA (2024) construction-to-permanent loans offer zero down payment financing in eligible areas (accessed 2025-10-29).
Conventional Construction Loans: Private lenders typically require 20% down, according to Bankrate (2025) industry analysis (accessed 2025-10-29). Skip that 20% and you're looking at private mortgage insurance that adds to your monthly costs.
In my Master’s of Social Work (MSW) c[BA1] oursework, we talk about how financial stress impacts decision-making. The down payment piece can cause serious anxiety because the numbers feel so big. But let's break this down practically.
If you're looking at conventional construction financing, budget for 20% of the total project cost—that includes both land and construction. So if your all-in project costs $400,000, you'd need $80,000 down. Now here's where it gets interesting: if you paid cash for land worth at least 20% of your total budget, you might not need additional down payment funds for the construction phase.
For an FHA one-time close loan requiring 3.5% down on that same $400,000 project, you're looking at $14,000—significantly more manageable for many families.
Before you start scrolling through land listings, pause and really think about what you need versus what you want. Location determines everything from your daily commute to your kids' school options.
Are you someone who thrives on city energy? Do you need to be near specific amenities for work or family? Or are you looking for space and quiet where your closest neighbor isn't right next door? What this means for you is that your lifestyle priorities should guide your location search.
Think of it like this: a beautiful five-acre property 45 minutes from your office might sound amazing on Saturday morning, but how will you feel about that commute on a rainy Tuesday at 6:30 AM?
Start by researching construction loan lenders who specialize in this type of financing. Not every lender offers construction loans—many traditional mortgage companies don't. Look for lenders with strong reputations, transparent fee structures, and experience managing the draw schedule process.
The draw schedule is how construction lenders release funds in stages as work progresses. Typically, you'll receive 4-7 draws throughout construction: foundation, framing, rough mechanicals, drywall completion, and final inspection. The lender sends an inspector to verify work completion before releasing each payment.
Construction loan interest rates typically run about 7-9% as of 2025, according to Trident Home Loans (2025) market analysis (accessed 2025-10-29). These rates are variable and tied to the prime rate, which means your payment can fluctuate during construction.
Work with an agent who has actual experience with land transactions. Buying raw land is not the same as buying a house. Your agent needs to understand things like perc tests, setback requirements, easements, and whether that gorgeous wooded lot actually has feasible access to utilities.
A good agent will write protection clauses into your purchase contract. These contingencies might include the land passing a soil percolation test, zoning approval for residential construction, and utility access verification. Without these protections, you could end up owning land you legally can't build on.
Online photos never tell the whole story. That flat-looking lot might have a 15-degree slope that'll require $30,000 in grading work. Those mature trees might be protected by local ordinances you can't work around.
When you visit, bring a checklist: Walk the entire property boundary and notice the slope and drainage patterns. Check the distance to the nearest utility connections—extending utilities across long distances gets expensive fast, sometimes running $50-100 per linear foot for underground electrical service. Drive the access at different times of day. Talk to neighbors if possible about local building inspectors, good contractors, and potential issues.
Property lines are often not where sellers think they are. A professional surveyor will establish exact boundary markers and create a legal survey document showing your property's precise dimensions. This survey costs $300-1,000 depending on property size and complexity. It's the best money you'll spend because it prevents expensive boundary disputes later.
The survey also identifies easements, which are legal rights for others to use portions of your property—usually for utility access or shared driveways. You need to know about these before designing your home placement.
Your real estate agent will help you determine a fair offer based on comparable land sales in the area. Land values depend heavily on location, access to utilities, zoning, and buildability. A 5-acre lot without well and septic access will sell for significantly less than a 5-acre lot with utilities already stubbed to the property line.
Be prepared for negotiation. The key is having your agent include those protective contingencies so you're not locked into buying unbuildable land.
Once your land purchase is under contract, it's time to build your construction team. People get excited and hire the first contractor they meet, or they go with the cheapest bid without vetting references.
Architect or Designer: Unless you're buying a pre-designed plan, you'll need someone to create your home's blueprint. Expect to pay 5-15% of construction costs for design work.
General Contractor: This person manages your entire build. Interview at least three general contractors. Ask for references from recent projects similar to yours. Actually call those references and ask about communication, budget management, and problem-solving.
Visit active job sites for any contractor you're considering. How organized is the site? Does the work look professional? Trust your instincts here.
Your general contractor should handle permit applications, but you need to understand what's required. At minimum, you'll need:
Building Permit: Authorizes construction and requires inspection at various stages based on International Building Code standards.
Electrical Permit: Covers all electrical work. Must be completed by licensed electricians and inspected before walls close up.
Plumbing Permit:[BA2] Required for water supply lines, drain-waste-vent systems, and gas lines.
Well and Septic Permits (Potentially): If the home isn’t connected to city water or sewer systems, these allow you to have your own well water and waste system.
Mechanical Permit: Covers HVAC installation, ductwork, and ventilation systems.
Depending on your location, you might also need septic permits, well permits, driveway permits, tree removal permits, or grading permits. Your contractor should provide a complete list based on your specific project.
Never close on land until you're certain you can obtain the necessary building permits.
Let's talk about how long this actually takes. Land purchase alone can take 30-90 days from offer to closing. Then you'll spend 1-3 months on design and permitting before breaking ground. Construction itself typically takes 6-12 months for a custom home.
So realistically, you're looking at 8-18 months from starting your land search to moving into your finished home. And that assumes everything goes reasonably smoothly. Weather delays, material shortages, labor scheduling, and permit issues can extend that timeline.
Beyond your down payment, budget for:
Construction costs vary dramatically by region. The National Association of Home Builders (2024) estimates average new construction costs between $150-200 per square foot for mid-range finishes (accessed 2025-10-29). But that doesn't include land, permits, utilities, landscaping, or driveways.
Building a custom home represents one of life's biggest financial and emotional investments. I'm going to be completely upfront about the pros and cons.
You Get Exactly What You Want: Every square foot, every finish, every detail gets designed for your specific needs. Need a home office with soundproofing? Done. Want an accessible first-floor primary suite for aging in place? Built in from day one.
Location Flexibility: You're not limited to existing housing stock. Found a beautiful lot in a neighborhood you love? You can build there.
Everything is New: Modern building codes mean better energy efficiency, updated electrical and plumbing systems, and the latest safety features. According to the Environmental Protection Agency (2024), new homes use approximately 30-40% less energy than homes built in the 1980s (accessed 2025-10-29).
Most builders provide a one-year warranty covering major systems and structural elements.
Higher Upfront Costs: Building typically costs 15-30% more than buying a comparable existing home, according to Buildable (2025) construction industry analysis (accessed 2025-10-29). You're paying for labor, materials at retail prices, permit fees, professional fees, and the builder's profit margin.
Longer Timeline: If you need to move quickly for a job relocation or life change, building isn't your answer. The 8-18 month timeline feels like forever when you're eager to settle in.
More Complexity and Stress: With new construction, you're making hundreds of decisions—from roof shingles to cabinet hardware to grout color. You're also managing relationships with contractors and handling construction problems that inevitably arise.
Financing Challenges: Construction loans require more documentation, higher down payments, and more stringent approval criteria than traditional mortgages. Credit score requirements are typically higher too—often 680 minimum for conventional construction loans, according to Space Coast Credit Union (2024) lending guidelines (accessed 2025-10-29).
Market Risk: If housing prices decline during your construction period, you could end up owing more than your finished home is worth when you convert to permanent financing.
Building a custom home means combining land purchase costs, construction expenses, financing fees, and significant time commitment. You're looking at easily $400,000-800,000 and 12-18 months of active involvement.
The families I've worked with who report the highest satisfaction share common traits: they researched thoroughly before starting, built strong teams of professionals, maintained healthy contingency budgets, communicated constantly with their builder, stayed flexible when problems arose, and kept focus on their ultimate goal.
Think of it like this: buying an existing home is like buying a suit off the rack. Building a custom home is like hiring a tailor to create a bespoke suit. It takes longer, costs more, and requires multiple fittings—but the end result fits you perfectly.
Only you can decide which approach makes sense for your family right now. If you need to move within 6 months, or if your budget can't accommodate the higher costs required for construction, buying existing might be your smarter play.
But if you've been searching fruitlessly for a home that truly meets your needs, if you have time to see the project through, if you can secure construction financing and maintain proper contingency funds, and if you're genuinely excited about the creative process? Building could be the right path.
FHAUSBuying land and building a custom home offers unmatched personalization and the opportunity to create exactly what you need. The process requires securing specialized construction financing (typically 20% down for conventional, 3.5% for , or 0% for VA/DA), assembling a qualified team of professionals, obtaining proper permits before closing, and maintaining realistic expectations about timelines and costs.
According to the U.S. Census Bureau and Department of Housing and Urban Development (2025), the median price for new single-family homes reached $413,500 in August 2025, with approximately 7.4 months of inventory available (accessed 2025-10-29). This represents a more favorable supply situation than existing homes.
Success requires thorough research, conservative budgeting with 10-15% contingency funds, experienced contractor partnerships, and patient commitment to an 8-18 month process. While building costs 15-30% more than buying existing homes and involves greater complexity, the result is a home designed specifically for your needs with modern systems, energy efficiency, and warranties covering major components.
Start by identifying your ideal location, securing financing preapproval, partnering with an experienced agent, visiting properties in person, investing in professional surveys, and assembling your construction team before purchasing land. Verify all permits are obtainable before closing, and maintain active involvement throughout construction.
When you're ready to transition from construction to permanent financing, explore mortgage refinancing options to secure competitive rates for your newly built home.
Yes. Construction-to-permanent loans (one-time close loans) are specifically designed to finance your land purchase and construction costs in a single mortgage. You close once, establish your permanent financing terms upfront, and convert to regular mortgage payments when construction completes. During construction, you'll make interest-only payments on funds drawn so far. These payments typically range from a few hundred to a couple thousand dollars monthly. Once you convert to permanent financing, you begin regular principal and interest payments based on your total loan amount. FHA one-time close loans work particularly well if you're a first-time homebuyer with limited down payment funds. That 3.5% down payment option combined with government-backed financing makes custom homebuilding accessible to families who might not qualify for conventional construction loans.
Technically, no. There's no legal requirement mandating agent representation for land transactions. But here's what this means for you practically: most people lack the expertise to navigate land purchases successfully on their own. A good agent brings knowledge about local zoning ordinances, environmental restrictions, utility access issues, typical contingencies, fair pricing, and negotiation strategies specific to land sales. They've seen the mistakes others make and can help you avoid them. Agent commissions are typically paid by the seller anyway, so representation costs you nothing directly. The seller's listing price includes the commission they plan to pay, whether you bring an agent or not. Going unrepresented doesn't save you money—it just means you're navigating alone.
Construction draws protect both you and your lender by ensuring payment only happens as work progresses. The typical schedule includes: Draw 1 (10-20%) for foundation completion, Draw 2 (20-30%) for framing and roof, Draw 3 (20-25%) for rough mechanicals installed, Draw 4 (15-20%) for drywall and exterior finished, Draw 5 (15-20%) for interior finishes installed, and Final Draw (10-15%) for final inspection passed. Before each draw release, the lender sends an inspector to verify work completion. This protects you from paying for incomplete or substandard work. Be extremely cautious about builders asking for large upfront payments. Reputable builders work within the draw schedule system and have sufficient operating capital. Builders who demand large upfront payments often have cash flow problems—a major red flag. The only acceptable upfront payment is a small earnest money deposit (typically $1,000-5,000) held in escrow, not paid directly to the builder.
If your original loan was $350,000 but actual costs hit $380,000, you need to cover that $30,000 shortfall yourself. Most experienced builders and lenders recommend budgeting a 10-15% contingency for cost overruns. What causes overruns? Material cost increases during construction, change orders for upgrades you decide to make mid-project, unforeseen site conditions like rock requiring blasting or poor soil requiring additional foundation work, code changes during construction, or labor cost increases. Some borrowers take out home equity lines of credit on other properties to cover potential overruns. Others reduce their finish specifications mid-construction to stay within budget. The best approach is being conservative with your initial budget, choosing middle-range finishes instead of luxury materials, making decisions early and sticking with them, and maintaining that healthy contingency fund for true emergencies.
You can, but should you? Acting as your own general contractor means you coordinate all subcontractors, manage the schedule, order materials, handle inspections, ensure code compliance, solve problems, and oversee quality control. If you have construction experience, strong project management skills, available time, and nerves of steel, owner-builder projects can save 15-25% on construction costs. But construction management is a full-time job for professionals. You'll spend months coordinating daily activities, solving unexpected problems, managing personalities and conflicts, and ensuring everything meets code. Many lenders won't offer construction loans for owner-builder projects because the risk is higher. Those who do typically require larger down payments and charge higher interest rates. Check your state's requirements—some require owner-builders to have construction licenses or take specific courses. You'll definitely need adequate insurance coverage because you're assuming all liability for workers on your property.
AmeriSave doesn't offer construction loans for the building phase. However, every scenario is different, and our product offerings change often. We specialize in permanent mortgage financing once your home is complete, but call us today to see what options we have available and what might fit your situation. For the quickest results, when your construction wraps up and you're ready to convert to long-term financing, that's where we come in. If you took out a construction-only loan or if your original construction lender doesn't offer competitive permanent financing terms, AmeriSave can help you refinance into a better long-term solution. Our digital platform makes the application process straightforward, and our team understands the unique aspects of newly constructed homes—like ensuring your certificate of occupancy is properly recorded and your home appraises correctly based on recent construction costs.
Building code requirements vary dramatically by jurisdiction, and alternative housing types face additional scrutiny. Tiny homes under 400 square feet often don't meet minimum dwelling size requirements in residential zones. Many municipalities classify them as RVs or temporary structures rather than permanent residences, which affects both permitting and financing. Barndominiums (metal buildings converted to living space) face similar challenges. Some areas prohibit metal structures in residential zones entirely. Others allow them but require expensive exterior treatments to match neighborhood aesthetics. Before buying land for any alternative housing type, verify with local planning and zoning departments that your intended structure is permitted. Get written confirmation from the building department that your plans comply with local codes before purchasing property.
Yes, but we're talking about substantial renovations—essentially rebuilding a house. Construction loans for renovations make sense when you're tearing down to studs, adding square footage, or replacing major systems entirely. For smaller projects under $50,000, you're better off with a , home equity loan, or cash-out refinance. These options typically offer simpler qualification, lower fees, and more flexibility in how you use funds.
Construction loans for renovations require detailed plans, licensed contractor involvement, and inspection-based draw schedules just like new construction. The lender needs to verify that your renovation actually adds value equal to the loan amount. FHA 203(k) renovation loans serve buyers purchasing fixer-uppers. These government-backed loans combine the home purchase and renovation costs into a single mortgage, allowing you to buy a property that needs work with just 3.5% down.
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