Building Your Dream Home? Here's What You Need to Know About Construction Loans
- RobertNWAHB
- May 27
- 2 min read
If you're thinking about building a custom home, you've likely heard the term "construction loan." But what exactly is it and how is it different from a regular mortgage?
At NWA Home Builders LLC, we’re not just your builders we’re your partners in this exciting journey. And part of that means helping you understand the financial side of the building process, so you can feel confident every step of the way.
What Is a Construction Loan?
A construction loan is a short-term, high-interest loan used to finance the building of a home. Unlike a traditional mortgage, which gives you a lump sum upfront, construction loans are disbursed in stages, based on the progress of your home.
Each stage from foundation to framing, drywall, and beyond triggers a new draw of funds from the lender, paid directly to the builder.
Construction Loan vs. Mortgage
Construction Loan | Traditional Mortgage |
Short-term (usually 6–18 months) | Long-term (15–30 years) |
Paid out in draws | Lump sum at closing |
Interest-only payments during construction | Principal + interest payments |
Converts to mortgage or requires refinance | Fixed from the beginning |
At the end of construction, your loan may convert to a traditional mortgage (called a construction-to-permanent loan), or you may need to refinance into a separate mortgage.
What You Need to Qualify
Like any loan, lenders will consider:
Credit score
Debt-to-income ratio
Down payment (often 20% or more)
A detailed construction plan from your builder
An appraised value of the completed home
Pro Tip: Working with an experienced builder like NWA Builders LLC can help streamline this process most lenders will require blueprints, a construction timeline, and a detailed budget.
How NWA Home Builders Helps
We’ve partnered with homeowners and lenders across Northwest Arkansas and can provide the detailed documents you need to secure a construction loan quickly and confidently.
We’ll also:
Communicate with your lender during draw requests
Keep your project on time and on budget
Offer advice on realistic building costs and timelines
Final Thoughts
A construction loan might sound intimidating at first, but with the right builder and lender, it's a straightforward path to your dream home.
At NWA Home Builders LLC, we believe custom homes should feel exciting not overwhelming. And that starts with making the process easy to understand, from first plans to final walkthrough.
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