Guide to Construction Loans and Financing for a Custom Home Build
Integra Built · Serving Willamette Valley and Central Oregon · CCB #234-156
Building a custom home is one of the most significant financial decisions you’ll make. And yet most people walk into the financing side of it completely unprepared, forgetting that a construction loan works nothing like a mortgage.
When you buy an existing home, the lender funds something tangible. When you build, you’re asking a lender to fund a project that doesn’t have walls yet. That changes how money moves, how risk is assessed, and what you need to have ready before the first dollar is released.
This guide walks you through how construction financing works in Oregon, what lenders actually require, and what you should have sorted out before you sit down with a lender.
Why Homeowners Work With
Integra Built
A construction loan is a phased loan used to finance a new real estate project. Unlike a traditional mortgage, which finances a finished home, a construction loan funds a home that doesn’t yet exist. The lender can’t hand over the full amount at signing since nothing is securing it.
Instead, funds are released in stages called draws, tied to completed phases of construction. You pay interest only on money that has been drawn, not on the full loan amount. Construction loans are typically 12 to 18 months long and interest-only during the build phase. Going past the scheduled term means an extension, usually at a fee.
The loan lifecycle may differ according to the lender, but most include:
1.
You apply and get approved before construction begins.
2.
The build moves through defined phases. At each milestone, your builder submits a draw request with supporting documentation.
3.
The lender orders a third-party inspection to verify the work. Once it clears, they release the funds.
4.
When construction is complete and the building department issues a certificate of occupancy, the loan converts to a permanent mortgage or is paid off with a new one.
Choosing Your Loan Structure
There are three common ways to finance a custom home build. Understanding the difference up front means you get to choose the structure that fits your situation.
1.
Construction-to-Permanent (One-Time Close)
This loan funds the build and converts automatically to a permanent mortgage when construction is complete. Your interest rate locks before you break ground, which offers predictability. The one drawback is that you won’t benefit from lower repayments if rates fall during a 12–18 month build.
2.
Stand-Alone Construction Loan (Two-Close)
With the stand-alone loan, you get two separate closings. The first one is for the actual build, while the second one is for a permanent mortgage once the home is complete. Two closings and two sets of fees. The upside is rate flexibility. You lock your permanent mortgage rate at the end of the construction, when the market may be more favorable. The tradeoff is that these loans are often more administratively demanding and have higher total closing costs.
| Feature | One-Time Close | Two-Close |
|---|---|---|
| Closings | 1 | 2 |
| Rate lock timing | Before construction starts | At the mortgage closing |
| Closing cost exposure | Lower | Higher |
| Rate flexibility | None during build | Full at conversion |
| Complexity | Lower | Higher |
Government-Backed Options: FHA and VA
Conventional construction loans aren’t the only path. These two government-backed programs are worth knowing about, particularly for first-time builders or veterans.
FHA construction loans
The Federal Housing Administration (FHA) also offers construction loans. These loans often follow the one-time close structure, but with lower down payments. They can have rates as low as 3.5% for borrowers with a credit score of 580 or higher.
VA construction loans
Veteran loans are available for eligible veterans, active-duty service members, and surviving spouses. They require no down payment and no private mortgage insurance. Like FHA, they’re typically structured as one-time close products and require a VA-approved builder.
A Note on Owner-Builder Loans
If you’re thinking of acting as your own general contractor, know that most conventional, FHA, and VA lenders won’t approve a loan where the borrower is also overseeing the build. In Oregon, anyone managing new ground-up residential construction must hold an active CCB license. Owner-builder loans do exist, but they carry a higher qualification bar and a narrower lender pool.
What It Takes to Qualify
To determine whether you qualify for a construction loan, lenders will evaluate your financial profile and the project’s completeness.
The financial profile assesses your ability to repay the loan, and they will look into factors like:
Income documentation: Self-employed borrowers will face more documentation requirements than W-2 employees. Expect to provide two years of tax returns, any K-1s, and a personal financial statement. Most lenders want to see stable, provable income, not just current income.
Credit score: Conventional construction loans generally require a score of 680 or higher. FHA allows a minimum down payment of 580. If your score is lower, it’s worth taking time to improve it before applying. The difference in rates between a 680 score and a 740 over an 18-month build adds up.
Project documentation is where construction loans differ most from a standard mortgage. Before a lender can approve your loan, you’ll need:
- Detailed architectural plans and specifications.
- A signed contract with a licensed, CCB-registered builder.
- A complete construction budget, including hard costs and soft costs.
- A draw schedule aligned with the build milestones.
- An as-completed appraisal based on the projected value of the finished home.
The as-completed appraisal is particularly important as it will impact the loan amount. If the appraiser’s projected value comes in below your total build cost, the loan amount shrinks to match, meaning you will have to cover the gap in cash or reduce the scope.
Lenders don’t just evaluate you. They also evaluate your builder. Oregon CCB licensing confirms a contractor carries general liability insurance and is bonded. An unlicensed contractor is a completion risk most lenders won’t accept.
Expect the lender to request the builder’s active CCB license number and to review the builder’s public permit history. Integra Built’s CCB #234-156 and permit record are exactly the kind of documentation lenders ask for at this stage.
How the Draw Schedule Works
Draws don’t release automatically. Instead, each one has to be earned and documented. Most Oregon custom builds run four to six draws, structured around the natural phases of construction:
Milestone count and draw structure vary by lender and project scope.
When the project hits a milestone, your builder submits a draw request with supporting documentation. The documentation could be lien waivers from subcontractors and suppliers, milestone photos, and any relevant invoices. The lender will order a third-party inspection. The inspector visits the site, confirms the work, and submits a report. Once everything checks out, funds are released.
Building a Budget That Holds
Your loan amount defines the ceiling on what you can spend. Getting that number right before closing is the difference between a project that finishes on plan and one that runs short mid-phase.
Two categories of costs need to be in your budget from the start. Hard costs are materials, labor, and site work. They cover everything that becomes part of the structure. Soft costs are everything else, like architectural and engineering fees, permits, lender fees, title insurance, and inspections. You will need to account for both before the application.
Finding the Right Lender
Not every lender offers construction loans, and among those that do, the experience level varies considerably. A lender who handles mostly purchase mortgages will approach a construction loan very differently from one who does dozens of custom build projects a year.
Regional banks and credit unions with established construction lending programs tend to be more practical to work with than national lenders. They understand local permit timelines, know what inspectors in Deschutes and Marion counties expect, and have draw processes calibrated to how builds actually move. Private lenders can offer more flexibility, but typically at higher interest rates.
Before you commit to a lender, ask questions like:
- How many residential construction loans do you close per year?
- What is your typical draw inspection turnaround time after a request is submitted?
- Do you use in-house inspectors or third-party services?
- What does a complete draw package look like, and what documentation do you need?
- What are your extension terms and fees if the build runs past the loan term?
If a lender cannot provide direct draw turnaround times or demonstrate expertise in custom residential construction, it is a sign to pause and interview other organizations.
From Application to Move-In
The lender conversation goes much better when you arrive prepared. The items below are what lenders need to evaluate both your application and your project:
On the project
Preliminary plans or detailed design intent, a realistic budget that includes site costs and utility connections, and any site investigation results you have.
On the builder
Your builder’s active CCB license number, their permit history, and confirmation that they’ve worked with lender draw schedules and third-party inspections before.
On the lot
Clarity on whether you own the land or it is still to be purchased. For rural Oregon lots, also include well yield potential, septic site evaluation, and electrical service availability.
On your finances
A reviewed credit report without any errors, two years of income documentation (tax returns, W-2s, K-1s if self-employed), and a clear understanding of how any lot equity factors into your down payment.
Avoiding the Mistakes That Derail Builds
Most construction financing problems are predictable. Here are the ones that come up most often in Oregon custom builds, along with the habits that prevent them.
- Draw documentation gaps: Missing lien waivers or milestone photos reset the draw clock and delay the next phase. Stay involved in each draw package before it goes to the lender.
- Unapproved scope changes: Change orders beyond the approved loan amount require lender review, updated documentation, and sometimes a new appraisal. Ensure every scope change is reviewed against the loan before work starts.
- Contingency consumed early: Once the reserve is gone, additional funds require lender re-approval. Remember to budget for Oregon-specific site risks from the start, not as an afterthought.
- Rural utility costs missed: Well, septic, and electrical lateral work must be in the original loan approval. Found mid-build, they require a loan modification and create delays.
- Timeline overruns. If construction exceeds the loan term, expect extension fees and possible rate adjustments. Build your schedule around realistic jurisdiction timelines, not best-case ones.
- WUI surprises. On designated WUI lots in Central Oregon, unaccounted R327 requirements can trigger plan revisions mid-permit review, delaying your start and compressing your draw timeline.
- Get pre-qualified before finalizing plans. Your loan amount shapes your design decisions, not the other way around.
- Choose a builder with documented experience coordinating lender draw schedules and third-party inspections.
- Stay actively involved in each draw package. Don’t leave it entirely to the contractor.
- Document every scope change, approval, and lender communication in writing.
Ready to Start Planning?
Construction financing is manageable when you understand how it’s structured. The builds that finish on time and on budget almost always have financing approved before construction starts, the scope is complete before the loan closes, and the draw schedule is built around how the project actually moves.
The most important conversation isn’t with a lender. It’s the conversation about what your build will actually cost, what your site conditions are, and what Oregon’s permitting requirements will add to the cost. Get that picture clear first. Everything else follows from it.
If you want to talk through what a ground-up custom build involves, from site evaluation through final draw, that’s exactly what we do. Reach out to the Integra Built team, and we’ll walk you through it.
Salem: Call Us (971) 217-2986 · Central Oregon: 971-213-4258 · adminsalem@integra-built.com
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