Do you know the difference between a mortgage and a construction loan?
If you don't, you're not alone. Many Utah County homeowners who are looking to finance their custom home don't realize the difference until they start applying. With an existing home, you agree on a price, lock in a loan, and close on all of it at once. A custom home works differently because the property being financed is still just a set of plans on the day you apply. So the money releases in stages as construction progresses, and the lender ends up vetting your builder just as closely as it vets you.
This guide will cover all of the ins and outs of a construction loan and what you need to qualify for one.
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Start with getting pre-approved, even if you already have a lot in mind, so you can have a solid idea of what you need to budget for. You don't want to invest time and effort into floor plans just to find out it's above your financial comfort level.
What lenders will approve you for comes down to your credit score and savings. Most lenders want a score in the high 600s and a down payment near 20% of the total project cost, though both figures shift depending on the lender and the loan program you end up in.
Once your budget is set, it's time to lock in land. If you already own your lot outright, that equity can often count toward your down payment. If you're still paying it off, plan on a separate lot loan first, since most lenders want the land secured before they'll finalize anything else.
Not every lot is build-ready the day you close on it. Utilities, soil and perc testing, and any HOA or county approvals specific to the parcel all factor into how quickly you can actually break ground, and a lender will want those questions answered before your construction loan moves forward too.
Land across Utah County has gotten harder to find, especially in growth communities like Eagle Mountain and Saratoga Springs. Some buyers get around this by bringing in a builder before they've even found a lot, letting that relationship guide the search, since a builder who already works the area often.
Lenders need a licensed, approved builder and a finalized set of plans before they'll move your loan into underwriting. "Finalized" means more than a rough sketch. Lenders want complete architectural drawings and a fixed-price contract they can underwrite, with your finishes and specs locked in beforehand.
Your architect will play a major role in this phase, since they're drawing up the plans your lender will see. Make sure you work with an asn custom home architects who knows what lenders will want to see in the files. Some buyers keep the architect and builder as two separate relationships and coordinate between them. You can also work with a design-build firm, where an architect and builder are on one centralized team.
Once your plans and builder are locked in, you're ready to formally apply. Most lenders will ask for:
Additionally, most lenders want to see a contingency built in on top of the base construction cost, usually somewhere between 5% and 10%, to cover the change orders and surprises that can come up. Investment ranges for Utah County builds vary quite a bit by finish level and lot condition, so prepare to budget accordingly.
Expect the application itself to take longer than a standard mortgage, since the lender is underwriting your project alongside your finances. A loan officer may come back with questions on the contract or the plans before the file is considered complete, so having your builder easy to reach during this stretch keeps things from stalling.
Underwriting on a construction loan looks past your income and credit. The lender also vets your builder's track record, checking things like licensing, insurance, and how past projects actually turned out, since the bank is taking on risk with your builder as much as with you.
The appraisal works differently too. The appraiser works from your plans and specs, comparing the finished home to similar recently built homes in the area to estimate what it's worth once construction wraps. This is usually the slowest part of the process, so a clean, complete file makes a real difference in how long it takes.
Once underwriting clears, you close on the loan and construction begins. You won't get the full loan amount at once. It's drawn down in pieces as the home gets built, and you pay interest only on what's actually been released. Keep in mind that payments on a construction loan can start anywhere from six to 24 months after closing, depending on how quickly the build moves.
A draw schedule ties each release to a construction milestone:
Your builder submits the draw request once a phase is finished, and the lender sends someone out to inspect the work before releasing the funds. That inspection usually happens within a few days, but if a milestone isn't quite complete when the inspector shows up, the draw gets pushed back. The same draw-and-inspect cycle repeats at every phase of construction financing, right up through your final walkthrough.
Most Utah County buyers use a construction-to-permanent loan, so the construction financing rolls straight into a standard mortgage once the home is done. You go through one approval and one closing, and your permanent rate locks in at the very start, which protects you if rates move while the home is being built.
Builds don't always finish exactly on schedule. Most construction-to-permanent loans include some flexibility for delays, though it's worth confirming with your lender upfront how long an extension you'd have if the timeline slips and what, if anything, it would cost you. Once the final inspection clears and the loan converts, your payment shifts from interest-only draws to a regular mortgage bill. That's the moment the home you've spent months watching take shape finally becomes the one you live in.
At Conner Construction, we will work through the financing process alongside you from your first pre-approval conversation through your final walkthrough. We help put together the plans and contract details a lender wants to see and will keep our end of the draw schedule moving so delays never fall on you. We've been building custom homes across Utah County and the surrounding areas for over 15 years, so you're getting an experienced team when you decide to partner with us.
Want to see what's possible? Browse our gallery to see our past work.
Contact us to ask any additional questions and schedule a free consultation.