Financing a Custom Home
How to finance
a custom home in Southern Utah.
Building costs money before there is a house to mortgage, so a custom home is financed differently than buying an existing one. This is a plain-language walk through how construction loans work in St. George, Cedar City, and across Washington, Iron, and Kane counties: the loan types, what lenders look for, how draws and interest work during the build, and how your lot fits in.
This is general education, not financial advice. Casteca Homes is a builder, not a lender, and we do not partner with, recommend, or guarantee any loan. Every figure here is illustrative and meant to show how the math works, not what you will be offered. For real rates, terms, and qualification, talk to a local construction lender.
Section 01
How construction loans work.
A regular mortgage funds a home that already exists. A custom build needs money released in stages as the home goes up, then a normal mortgage once it is finished. The most common tool that does both is a construction-to-permanent loan, which comes in two shapes.
Single-close (construction-to-permanent)
One loan, one closing, one set of closing costs. It funds construction as draws, then converts to a standard 15 or 30 year mortgage when the home is finished. You lock the structure once and avoid re-qualifying mid-build.
- One application and one appraisal up front
- One set of closing costs instead of two
- Less risk that rates or your qualification change before the home is done
Two-close (construction loan, then refinance)
A short-term construction loan covers the build, then you refinance into a separate permanent mortgage when it is complete. More moving parts, but it can give you a second shot at the best permanent rate or terms.
- Two applications, two appraisals, two sets of closing costs
- You re-qualify for the permanent loan, so your finances must still hold up at the end
- Flexibility to shop the permanent mortgage separately
Which one fits depends on your finances, the rate environment, and how much complexity you want to manage. A local construction lender can compare both against your situation. Our job on the build side is to give that lender the clean plans, contract, and budget they need to say yes.
Section 02
What lenders look for.
Because there is no finished home backing the loan yet, construction lending is judged a little more strictly than a standard purchase. These are the levers lenders weigh most. The exact thresholds are theirs, not ours, and they vary by program.
01
Credit history
Construction lending carries more risk than buying a finished home, so the credit bar is usually a notch higher. Strong, clean credit widens your options and improves the rate you are offered.
02
Debt-to-income ratio
Lenders weigh your monthly debt against your income. The lower your existing obligations, the more comfortable they are extending a construction loan on top of them.
03
Down payment
Commonly 20 to 25 percent of the build, sometimes more for a custom project, because there is no existing house to seize if things go wrong. Owning your lot can count toward this (see below).
04
Cash reserves
Expect to show reserves beyond the down payment: months of payments in the bank, plus a contingency the lender wants in place for cost changes during the build.
05
The builder and the plans
The lender underwrites the project, not just you. They will want a licensed, insured builder, a fixed or clearly defined contract, full plans, and a real budget. A clean builder file makes their decision easier.
An illustrative down payment
Take a 4,000 sq ft premium-finish home at $385 per square foot, which is a build cost of $1,540,000 before land, sitework, and soft costs. At a typical 20 to 25 percent down, the cash going in looks like this.
20 percent down
$308,000
25 percent down
$385,000
Illustrative only, on build cost alone. Your actual loan, down payment, and total project cost depend on your lot, finish level, soft costs, and the lender's program. If you already own your lot, its equity can reduce the cash you bring (Section 04). Run your own build number in the cost estimator.
Section 03
Draws and interest
during the build.
A construction loan does not hand you the full amount on day one. It releases money in stages as the home is built, and you pay interest only on what has been drawn. Here is the cycle, start to finish.
01
The build is split into milestones
Your loan amount is divided across stages: foundation, framing, mechanical rough-in, drywall, finishes, and final. Each stage is a draw the lender releases as work is verified.
02
Funds release as work is completed
Money is not handed over up front. As each milestone is reached, an inspector or appraiser confirms the work, and the lender releases that draw to pay the builder. This protects you and the lender from paying for work that has not happened.
03
You pay interest only on what is drawn
During construction you typically pay interest on the balance drawn so far, not the full loan. Early in the build, when little has been drawn, the payment is small. It grows as the home progresses and more is released.
04
It converts or refinances at completion
When the home is finished and the final draw clears, a single-close loan converts to your permanent mortgage and a two-close loan is refinanced. Your full principal-and-interest payment begins from there.
Interest-only-during-construction is why people sometimes carry a construction loan and rent at the same time without it feeling like a full mortgage from day one. Budget for it anyway: those payments are real money over a 9-to-12-month construction phase, and they belong in your financing line, which we call out in the cost-to-build guide.
Section 04
Using your lot as equity.
If you already own your land, you are further along than you think. Lenders frequently let the equity in your lot count toward the down payment or required cash on a construction loan, because the land becomes part of the collateral the loan is secured against.
How much it helps depends on what you paid, what you still owe on it, and what it appraises for now. A lot bought years ago in a growing Washington County community can carry meaningful equity. Bring your purchase documents, any payoff balance, and a recent appraisal to your lender so they can credit the land correctly.
What to bring your lender about the lot
- Purchase price and closing date
- Any remaining loan balance on the land
- A recent appraisal or comparable sales
- Whether you own it free and clear
Owning the lot does not guarantee a lower down payment, and the credit varies by lender and program. Confirm how your land is treated before you count on it.
Section 05
The appraisal step.
A lender will not finance a home worth less than they are lending, so the home gets appraised before construction money is committed. The catch with a custom build is that the home does not exist yet. The appraiser works from your plans, specifications, and budget, plus the lot, to estimate what the finished home will be worth. This is called a subject-to-completion appraisal, and the value it lands on sets how much the lender will lend.
This is one more reason a complete, well-documented project matters. Full plans, a clear finish schedule, and a real line-item budget give the appraiser the detail to value the home accurately, instead of guessing low. It is the same package that helps the lender qualify the project in Section 02. Building it carefully on the front end keeps your financing on track on the back end.
Section 06
Common questions.
01
What kind of loan do I need to build a custom home?
Most buyers use a construction-to-permanent loan, which funds the build in stages and then becomes a normal mortgage when the home is finished. You can do this as a single-close loan (one closing) or a two-close loan (a short-term construction loan you later refinance). A local construction lender can tell you which fits your situation.
02
What is the difference between a single-close and a two-close construction loan?
A single-close loan has one application, one appraisal, and one set of closing costs, and it converts to your permanent mortgage automatically when construction ends. A two-close loan is a short-term construction loan that you refinance into a separate permanent mortgage at completion, which means two closings and re-qualifying at the end. Single-close is simpler and lowers the risk that your rate or finances change mid-build.
03
How much do I need to put down to build a custom home?
Down payments on a custom-home construction loan commonly run 20 to 25 percent of the build cost, and sometimes more, because there is no finished home backing the loan yet. If you already own your lot, its equity can count toward that down payment. Confirm the exact requirement with your lender, since it varies by program and credit.
04
Can owning my lot count toward the down payment?
Often, yes. If you already own the land outright or have built equity in it, lenders frequently let that equity count toward the down payment or required cash on a construction loan. The lot is appraised as part of the project. Bring the lot's purchase price, any payoff, and a recent appraisal to your lender so they can credit it correctly.
05
How do payments work while the home is being built?
During construction you typically pay interest only, and only on the portion of the loan drawn so far. Payments start small when little has been drawn and grow as the build progresses. Once the home is complete, the loan converts or refinances and you begin full principal-and-interest payments on a standard mortgage.
06
What is a draw schedule?
A draw schedule is the plan for releasing loan funds in stages tied to construction milestones, such as foundation, framing, rough-in, and finishes. As each stage is verified by an inspection, the lender releases that draw to pay the builder. It protects you from paying for work that has not been completed.
07
How does the appraisal work when the home does not exist yet?
For a construction loan, the appraiser values the home based on the plans, specifications, and budget, plus the lot, to estimate what it will be worth when finished. This 'subject-to-completion' appraisal sets how much the lender will lend. A complete set of plans and a clear budget make this step go smoothly.
08
Does Casteca Homes provide financing?
No. Casteca Homes is a builder, not a lender, and nothing here is financial advice. We build your home and provide the plans, contract, and budget your lender needs, and we work alongside your construction lender through the draw schedule. For the loan itself, talk to a local construction lender. Every figure on this page is illustrative; confirm real numbers with your lender.
We build, your lender funds.
Get the build side
lender-ready.
Lenders fund a clear project faster. Run the cost estimator for a build number to take to your lender, then book a discovery call and we will put together the plans, contract, and line-item budget your construction loan needs. For the loan itself, talk to a local construction lender.