Understanding Construction Loans: What to Ask Before You Build

Financing is one of the first questions I get from anyone considering a custom build, and it's also the one I'm least qualified to answer in detail — I'm a builder, not a lender. What I can do is explain how construction loans generally work and what's worth asking a lender directly, so you walk into that conversation prepared instead of starting from zero.

How a Construction Loan Is Different From a Mortgage

A standard mortgage is a single loan for a home that already exists. A construction loan is structured differently because the home doesn't exist yet — funds are typically released in draws as the build progresses, rather than handed over all at once. Some lenders offer a single "construction-to-permanent" loan that converts to a standard mortgage once the home is finished; others require two separate loans, one for construction and one for the permanent mortgage afterward. Which structure makes sense depends on your lender, your credit picture, and your specific project — which is exactly why this is a conversation to have early with a lender, not something to assume.

What Draw Schedules Mean for Your Build

Because funds are released in stages, most construction loans are tied to a draw schedule — payments released as specific milestones are completed, verified by an inspection rather than just a request. This is part of why the pre-construction planning process matters so much: a realistic timeline and clear milestones make the draw process smoother for everyone involved, including you.

Questions Worth Asking Your Lender

Before you commit to a lender, it's worth asking directly:

Is this a construction-to-permanent loan, or two separate loans? This affects how many times you'll go through closing, and what your rate looks like once the home is finished.

How are draws released, and what triggers each one? Understanding the inspection and verification process ahead of time avoids surprises mid-build.

What down payment and documentation does this loan require? Construction loans often carry different requirements than a standard mortgage — ask specifically rather than assuming your prior mortgage experience applies.

What happens if the build timeline shifts? Weather, permitting, and site conditions can all affect timing. Ask how your specific loan handles that before it becomes a problem.

I can't answer these on a lender's behalf, and I wouldn't want to — loan terms are specific to you, your lender, and your financial picture. What I can do is make sure the building side of the equation (realistic timelines, clear milestones, honest scope) sets you up to have that conversation with confidence.

Choosing a Lender

You're free to work with any lender you choose — that's entirely your decision, and it doesn't affect how we work together on the build. If you don't already have a lender relationship, I'm happy to share who I typically work with, including John at Geneva, simply because of their familiarity with construction-to-permanent loans and draw schedules on projects like this one. That's a convenience, not a requirement, and it's worth shopping your loan the same way you'd shop anything else this size.

Lender disclosure — USE OPTION A if no money or business benefit changes hands for the referral:

Darling Homes by GoodFind LLC may refer clients to John Broughton at Geneva Financial as a courtesy, based on his experience with construction lending. We receive no fee, commission, or other compensation for this referral. You are under no obligation to use this lender, and choosing a different lender will not affect the terms, pricing, or availability of our services.

Let's Talk Through the Building Side

If you're in the early stages of thinking through financing and want to understand how the build timeline and milestones typically work, that's a conversation I'm glad to have.

Schedule a Build Discovery Call with Keith, and visit our Financing page for additional resources as you talk with your lender.

This article is for general educational purposes and is not financial or lending advice. Loan terms, requirements, and availability vary by lender and individual circumstances — consult a licensed lender directly. Michigan Residential Builder License #242600279.