Building your own home is one of the most personal and transformative financial decisions you can make. From selecting the perfect plot of land to fine-tuning floor plans, lighting, finishes and landscaping—custom homebuilding is deeply satisfying. But before the first shovel hits the dirt, you’ll need to determine how to pay for it.
A home construction loan is a specialized form of financing that supports your homebuilding journey from blueprint to move-in day. Whether you’re dreaming of a sleek, modernist retreat in the mountains or a cozy, rustic home with panoramic views, understanding how new home construction loans work is a good first step toward turning that dream into reality.
Here’s what we cover:
Unlike a traditional mortgage, which finances an existing property, a home construction loan covers the costs of building a home from the ground up. These are short-term, high-engagement loans that fund each stage of the construction process through what are known as draw disbursements, ensuring that your loan funds are released only as work is completed.
Most lenders offer two main types of construction loans:
Alpine Bank, a Colorado-based financial institution, specializes in supporting this process through their land and construction loan programs, offering tailored options and local guidance from start to finish.
A standard mortgage is designed to finance a finished home, which means it cannot fund the step-by-step process of building one. That’s where construction loans come in. These loans not only give you the financial flexibility to manage costs as they arise but also enforce discipline and transparency throughout the building process.
Key advantages include:
One of the most important decisions you’ll make is whether to pursue a one-time close or two-time close loan. Here’s a breakdown:
This type of loan covers both construction and permanent financing in one package. You go through a single approval and closing process, saving time and money on closing costs. It’s ideal for borrowers who want a simplified process and have a clear construction timeline. Alpine Bank offers this efficient solution through their construction loan offerings.
Pros:
With this option, you first obtain a loan to cover construction costs. Once your home is complete, you apply for a traditional mortgage. This provides flexibility in changing market conditions, as you can shop for better rates on your permanent mortgage later.
Pros:
Cons:
Building a custom home is complex, and the financing process is no different. Here’s what you can expect when applying for a construction loan:
Before applying, it’s wise to meet with a loan officer to assess your eligibility and establish your dream home budget. Expect a more rigorous process than a conventional mortgage, your credit score, income, assets and existing debts will all be considered.
If you haven’t yet purchased land, some lenders like Alpine Bank provide land purchase financing as part of the construction loan. This can be rolled into your total loan package or handled separately, depending on your timeline.
Many lenders require you to work with a licensed, vetted builder. You’ll need to provide a detailed construction contract, blueprints, timelines and itemized costs. These documents are critical for the construction loan approval process.
Once your documentation is complete, the underwriting process begins. The bank evaluates your qualifications and the viability of the project. At Alpine Bank, this includes a review of your builder’s credentials and the appraisal of the proposed home’s value upon completion.
Once approved, you’ll close on your loan. If you’re using a one-time close loan, your permanent mortgage terms are locked in now. With a two-time close, this only covers the construction phase.
Funds are released in draws as construction milestones are met. These are typically inspected by a third party or bank representative. Managing these loan disbursements efficiently is crucial to staying on schedule and within budget.
When your new home passes its final inspection, the construction loan either rolls into a permanent mortgage (if one-time close) or you’ll apply for a new mortgage to pay off the construction loan (if two-time close).
Construction loans can be used to finance a wide range of building-related expenses, including:
Some lenders, including Alpine Bank, allow flexibility for home design customization, making it easier to personalize everything from layout to energy-efficient features.
A self-build mortgage or construction loan for a custom build offers more freedom, but it also comes with more responsibility. You’ll be involved in decisions every step of the way—from hiring contractors to making aesthetic choices. Spec homes, built by developers on speculation that the home will be sold to a buyer on completion, offer less flexibility but are generally quicker and easier to finance.
For hands-on homeowners looking to be part of every phase, construction loans provide the ultimate home design flexibility and creative control.
Like any financial product, construction loans come with risks:
Because of its builder financing options and local expertise, working with a bank like Alpine can help you sidestep many of these pitfalls.
Choosing the right lending partner is just as important as choosing your builder. Alpine Bank has deep roots in Colorado and a strong track record of supporting individuals through complex financing scenarios. Their land and construction loan offerings are ideal for first-time builders and experienced homeowners alike.
What sets Alpine Bank apart?
A home construction loan does more than just fund the building of a house, it brings your vision to life. Whether you’re seeking more space for a growing family, designing a quiet retreat or investing in a legacy property, the right loan transforms blueprints into bricks and ideas into structure.
With a clear understanding of how construction loans work and a partner like Alpine Bank, your dream home is not only possible—it’s fully within reach.
*Must meet Alpine Bank’s underwriting requirements. Rates and terms are subject to change based on current market conditions. Please contact your local Alpine Bank loan officer for more information, other restrictions may apply.
