Guide to Construction Loans & Building a Home - Fatima Coeg


Guide to Construction Loans & Building a Home

 If you’re looking to finance a new home build in Texas, there are plenty of pros and cons to consider. With house prices in the state continuing to rise, now is a great time to think about home building loans or even making significant renovations to an existing property.

If you’re still undecided about which option is right for you, this guide is here to help you understand more construction and renovation loans in Texas, and how you can make the best decision for your situation.

Difference Between Building a New Home and Buying an Existing Home

Building a home from the ground up can be an exciting prospect. But there are also plenty of challenges that it can throw your way. Before you start talking to home lenders in Houston, Austin, or Galveston, take some time to weigh up the differences between a new construction or purchasing an existing property.


Unless you plan to pay in cash, you’ll need to finance any new build using a construction loan. While there are different types of construction loans that you can take out, they’ll all typically have higher interest rates than a standard mortgage. This can add to your overall cost for the home, especially when you’re already expected to make a 20-25% down payment.

Mortgages for existing properties are generally more flexible when it comes to the down payment, as well as the interest rate. This is one of the biggest considerations to make when you’re trying to decide if a new build is right for you.

There are some low-rate construction loans in Texas, like a One-Time Close (OTC) construction to permanent loan. These can be helpful if there’s a strong seller’s market in your location. With continual buyer demand and low inventory, waiting for an existing property can take much longer and home prices can be greatly exaggerated beyond their true value. In this situation, building a home with a construction loan can sometimes work out to be cheaper long term.

Architect costs

If you’re planning to build your home using a dedicated home building company, many of them have architects as part of their team. Others, though, require you to provide your own architect. You’ll need to spend anywhere from 5% to 15% of the total project cost on architect fees, which is of course not something you would have to think about with an existing property.

Time to move-in

Building takes time and requires you to be patient. It can take anywhere from four to six month, or more if you have high levels of customization, to complete your home. If you need to move in quickly, buying an existing property will likely be a better choice.


Undoubtedly, one of the biggest benefits of building a home in Texas is the endless opportunity for making your property exactly what you want. Having the option to choose your home’s layout, materials, colors, and features can be a great draw for many homebuyers, or completely overwhelming for others.

Many building companies offer a set range of options to help combat choice paralysis, while still keeping the decisions personal to you. If you have special requirements, like a kosher kitchen layout or a wheelchair accessible first floor, building your home is a great option for you.


When you have a new home with energy-efficient appliances and materials, thinking about maintenance becomes quite simple. You’re unlikely to find yourself replacing the roof, covering up water damage, or spending a small fortune on a new HVAC system any time soon. With the money you save on renovations, you may be able to handle a larger mortgage payment to pay off your loan faster.

What Are the Steps in Building a New Home?

1. Site preparation: Crews will start by clearing debris, rocks, or vegetation on the site. The goal is to make it as level as possible before pouring the foundation.

2. Pouring the foundation: Foundations are usually built on slab, basements, or crawl spaces. They’re made from poured concrete with steel rods to keep the construction sturdy.

3. Framing: At this point, the contractor will install the walls, windows, and doors, along with the flooring and roof.

4. Plumbing, electrical and HVAC: Once the plumbing and HVAC system are in place, the electrician will finish up this step with the wiring installation.

5. Insulation and drywall: Adding insulation is an important step in controlling the home’s temperature. Once the drywall goes up, the interior will begin to look complete.

6. Interior and exterior finishes: Interior finishes like fireplaces, mantles, floors, internal doors, and decorative trims will all happen once the drywall is installed. Driveways, patios, and siding will also be added to the exterior of the home.

7. Inspection and final walkthrough: During the final inspection, a building code official will give you a certificate of occupancy and certify the home ready for move-in. Your pre-settlement walkthrough with the builder will show you everything in your new home and let you know what your responsibilities are for the various warranties.

Things to Know When Building a Home

Full disclosure statement

By law, your builder is required to give you a full disclosure statement. All of your specifications and options must be included “in writing” (that’s the crucial part!). You aren’t guaranteed anything without a written contract. Any changes to blueprints or options should all be made in writing and signed off on before building begins.


Your builders are also legally obliged to provide you with a complete list of any subcontractors or suppliers who will be working throughout the build process. If any changes are made at any point, you must be notified as the homeowner.

Home warranty

Always read the home builder’s warranty before you sign any contracts. If you aren’t happy with something, make this clear before moving ahead. In Texas, all builders must guarantee your slab and structure for ten years after the build is complete.

But if your builder goes out of business, the warranty is void. Some builders change their business name every few years to avoid these warranties, so do your research before choosing your builder.

Licensed contractors

Did you know that homes built outside the city limits don’t require licensed or insured contractors? This is why many choose to only work outside of cities in Texas. But hiring competent and qualified contractors for your home is still important, no matter where you’re building your property.

Think carefully about a basement

Texas is known for its beautiful above-ground scenery and landscapes, but underground is a different story. Dig down to about 6 inches and you hit solid limestone. If your dream is to have a home with a basement, be prepared to spend some money on heavy machinery to cut into those rocks!

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