If you’re planning to build a home or investment property from the ground up, you’ll need more than just blueprints and ambition. You’ll also need financing. That’s where new construction loans in Texas come in. These loans give you access to the money you need to pay for materials, labor, permits, and other building expenses. However, the process is different from a standard mortgage.
Before you apply, you should understand how these loans work, what the approval process looks like, and how construction costs in Texas affect your loan. This guide explains everything you need to know to make an informed decision.
What Is a New Construction Loan?
A new construction loan is a short-term loan that funds the building of a residential or commercial property. Instead of receiving the entire loan amount upfront like a traditional mortgage, the funds are disbursed in stages, known as “draws,” as construction progresses.
You only pay interest on the amount drawn, not the full loan. Once the project is complete, the construction loan is either converted to a permanent mortgage (in the case of a home) or paid off with a new loan or sale of the property (common for investors).
Types of Construction Loans in Texas
There are several types of new construction loans in Texas that borrowers can apply for, depending on their project goals:
- Construction-to-Permanent Loans
These loans cover both the construction and the mortgage. The loan closes a single time, reducing paperwork and additional fees. When construction ends, the loan converts to a standard mortgage. - Stand-Alone Construction Loans
Also known as two-close loans, these are designed for the building phase only. You’ll need to apply for a separate mortgage once construction is done. This gives you more flexibility but can increase overall costs. - Owner-Builder Construction Loans
If you plan to act as your own general contractor, this might apply. However, most lenders prefer to work with experienced builders and may not offer these loans to first-time homebuilders. - Hard Money Construction Loans
For fast approvals and flexible terms, especially for investment projects, hard money loans from private lenders are a strong option. These loans are asset-based, focusing on the value of the property rather than your credit profile.
The Approval Process
Getting approved for a construction loan in Texas requires more documentation and planning than a standard home loan. Here’s a step-by-step look at what you can expect:
- Submit Your Plans
Lenders want to see architectural designs, building permits, detailed budgets, and timelines. These help the lender assess the cost and feasibility of your project. - Choose a Qualified Builder
Most lenders only work with licensed and insured builders with a strong track record. You’ll likely need to provide their portfolio and references. - Credit and Income Review
Your lender will check your credit score, debt-to-income ratio, and income documentation. Requirements vary, but a good to excellent credit score is generally preferred. - Property Appraisal
An appraiser will estimate the future value of the completed home based on your plans. This value helps determine your loan-to-value ratio(LTV), which influences your loan amount. - Down Payment
Construction loans usually require a down paymentof 20% to 30%. For instance, if your total project costs $400,000, you may need to contribute $80,000 to $120,000 upfront. - Loan Closing
Once approved, you’ll sign the loan documents and begin the draw schedule. Your builder will request funds in stages as work is completed, and each draw may require inspection.
Lender Options in Texas
When you’re looking for new construction loans in Texas, you’ll find several lender options available. Each type of lender offers different benefits, depending on your credit profile, timeline, and project needs. The main categories include traditional banks, credit unions, mortgage companies, and private lenders.
Traditional Banks and Credit Unions
Banks and credit unions are often the first choice for borrowers with strong credit and documented income. They typically offer lower interest rates and more predictable terms. However, their approval process can be slow, often taking several weeks or even longer. They also require extensive documentation, such as tax returns, income verification, and a strong credit history. These institutions are less flexible when it comes to unique or complex construction projects.
Mortgage Companies
Mortgage lenders may offer more specialized construction loan programs than traditional banks. They often work with a wider range of borrowers and provide more flexible loan structures. However, they might charge higher fees and interest rates compared to banks. Mortgage companies can be a good fit if you want a lender familiar with different types of property builds and financing strategies.
Private Lenders
Private lenders, including hard money lenders, provide faster funding and more flexible approval standards. These lenders focus more on the value of the project and property rather than your income or credit score. If you have a tight timeline, non-traditional income, or a unique construction project that doesn’t qualify for conventional loans, private lenders are often the most reliable option.
Draw Process and Loan Repayment
Construction loans in Texas use a draw schedule. After each phase of work is completed, foundation, framing, roofing, etc., your builder requests a draw.
Lenders typically require inspections at each stage to verify progress. Once verified, funds are released.
You’ll pay interest only during construction. Once the build is complete, the loan either converts to a mortgage (if it’s a construction-to-permanent loan) or must be refinanced or paid off.
Build With Insula Capital Group
If you’re building in Texas or anywhere else across the U.S., Insula Capital Group offers flexible and fast funding through new construction loans in Texas and beyond. As one of the top private lenders in the country, we specialize in short-term loans with minimal paperwork, fast closings, and no prepayment penalties.
Whether you’re planning a residential build in Austin, a commercial property in Houston, or looking into new construction loans in California, San Diego, or Atlanta, we’re here to help you get started. We lend nationwide with the same speed, transparency, and customer-first approach.
Contact us today to get started on your next construction project with a loan partner that understands your goals.
