Clear financing steps to fund on‑your‑lot custom homes in the Texas Hill Country.
Financing an on‑your‑lot custom home is different from buying a finished house. Most owners choose either a construction‑to‑permanent (CTP) loan—one closing that converts to a mortgage at completion—or a two‑time close (separate construction and mortgage loans). CTP reduces duplicate fees and re‑qualification risk; two‑time close can offer more lender flexibility mid‑build, at the cost of extra paperwork and potential rate changes. Begin with lender pre‑qualification tied to a realistic budget and a specific lot. Your estimate should include sitework wildcards common in the Hill Country (rock excavation, retaining, long utility runs, septic, well), long‑lead materials, contingency (10–15%), and soft costs (survey, soils, engineering, permits, insurance). Texas borrowers should confirm lender licensing and consumer protections. The Texas Department of Savings and Mortgage Lending maintains consumer guidance and license lookups at Texas Department of Savings and Mortgage Lending. Ask lenders to provide a sample draw schedule tied to milestones you and your builder can hit: pad and foundation, framing/dry‑in, rough‑ins, insulation/drywall, cabinets/tile, substantial completion. Clarify inspection methods, draw timing (days from request to wire), retainage policies, interest‑only accrual, and whether a re‑inspection fee applies after weather delays. Plan for rate strategy and documents. Some banks lock a portion of your end‑loan rate early; others float until conversion. Collect W‑2s or K‑1s, tax returns, bank statements, and the executed construction contract. If you’re self‑building or carrying materials directly, ask about restrictions—many lenders require a licensed GC and specific insurance. Keep your selection/spec book aligned with the budget so scope changes don’t derail underwriting.
A good lender relationship matters as much as the rate. Vet lenders for on‑your‑lot experience, clear draw processes, and in‑house construction administration. Ask how they verify progress (inspections vs. photos), how fast draws fund, and whether they accept e‑sign change orders that alter budgets. National guidance on construction loans is summarized by the CFPB at CFPB: What is a construction loan? and by Fannie Mae’s CTP program overview here: Fannie Mae Construction-to-Permanent overview. Many Texas borrowers also consider portfolio lenders with local knowledge; for example, see a regional bank’s product description for typical terms and draw mechanics: Frost Bank Construction Loans. Nail the paperwork early. Align your builder’s cost breakdown (CSI or similar) with the lender’s draw schedule; mismatched categories slow funding. Provide stamped plans, engineered soils/foundation letters, permits, insurance (builder’s risk plus general liability for the builder), and evidence of contingency. Keep a live change‑order log so the bank and title company can reconcile budget shifts before the next draw. For title mechanics and Texas forms, your title company will coordinate disbursements; understanding the basics reduces surprises on funding day. Finally, plan cash flow for allowances. Big‑ticket selections—windows/doors, appliances, cabinets—often require deposits before the first scheduled draw. Confirm whether your lender can advance against approved invoices or if you need temporary out‑of‑pocket coverage to hold lead-time slots.
Risk management protects both budget and timeline. Maintain builder’s risk throughout construction and convert to homeowners coverage at certificate of occupancy; the Texas Department of Insurance provides a practical primer on builder’s risk here: TDI: Builder’s risk insurance. Keep lien releases organized—conditional upon payment prior to funding, unconditional after—so title can endorse cleanly at each draw. Watch common pitfalls: underestimating site costs (rock excavation, retaining), leaving no float for permits, and ignoring utility lead times (transformers, meter bases). Pedernales Electric Cooperative’s new‑service steps illustrate timelines and documentation lenders often ask to see before funding trenching or meter‑set work: PEC new service steps. If your project is in a city or ETJ with stormwater requirements, budget for erosion controls and potential inspections; Texas summarizes construction stormwater permitting at TCEQ: Construction Stormwater Permit Overview. As you near completion, coordinate the final inspection, punch, and the conversion package (survey, appraisal update, title endorsement) well in advance. Keep a clean binder with contracts, draws, lien releases, permits, warranties, and as‑builts—your future self and your insurer will thank you.
Email for a list of Build on Your Lot lender options we have worked with in the past: Joseph@TrueStoneHomes.com