Construction Loans to Bring Your Project to Life 

Building a home or starting a new construction project comes with a different set of financial questions than purchasing a property that's already complete.

• How much can you borrow? 

• When will your builder receive funds? 

• What happens if costs change during construction? 

• Once the project is finished, what happens to the construction loan?

Those are questions worth answering before construction begins.

First Western Bank's construction lenders can help you understand the financing process, what you'll need to prepare, and what to expect as your project moves from plans on paper to completed construction.

What Is a Construction Loan?

A construction loan provides financing for the cost of building a new home or other property.

Unlike a traditional mortgage, where the loan funds are generally provided at closing, construction financing is typically released in stages as work on the project is completed. These stages are commonly called draws.

That means your construction loan needs to account for more than the final cost of the property. Your lender will review the plans, construction budget, builder or contractor information, project timeline, and other details before work begins.

Throughout construction, funds are then made available according to the approved draw process.

If you've never financed a construction project before, you don't need to understand every part of that process before contacting First Western. That's what the initial conversation with your lender is for.

Key Benefits 

There are a lot of moving pieces involved in construction. Your financing shouldn't be another part of the project you're left trying to figure out on your own.

Working with a lender who can explain what happens next, from the initial review through your final draw, can make the financial side of building easier to navigate.

• Interest-only payments during the construction period: Pay interest on funds as they're drawn rather than making a traditional mortgage payment during construction.

• Flexible draw schedules: A draw process designed to align funding with construction stages.

• Local construction experience: Work with lenders familiar with builders, projects, and construction in the communities First Western serves.

• Construction-to-permanent financing: The ability to transition eligible construction financing into a permanent mortgage after construction is complete.

Types of Construction Loans 

The right financing structure depends on what you're building, who is managing construction, and what needs to happen once the project is complete. 

Construction-to-Permanent Loans 

A construction-to-permanent loan combines financing for the construction period with longer-term financing once the project is finished.

During construction, funds are drawn as work progresses. After the home or property is completed and applicable requirements are met, the loan transitions into permanent financing.

Standalone Construction Loans 

A standalone construction loan finances the building phase separately from the permanent mortgage.

Once construction is complete, the construction loan is paid off, typically through separate permanent financing or another source of funds.

Because this involves two separate financing arrangements, borrowers should understand what will be required at the end of construction before choosing this option.

A First Western lender can explain how the process works and what you should plan for from the beginning.

Owner-Builder Loans 

If you plan to act as your own general contractor, financing may work differently than it would when using a professional builder.

Owner-builder construction can require additional experience, documentation, project oversight, or other qualifications.

Builder/Spec Loans 

Builders and developers constructing homes without a committed buyer may have different financing needs than someone building a personal residence.

A builder or spec construction loan can provide financing for eligible construction costs while the property is being built and prepared for sale.

How the Process Works

One of the biggest differences between a construction loan and a traditional mortgage is what happens after you're approved.

Construction financing continues alongside the project, so knowing how the process works from the beginning can help you and your builder prepare.

Step 1: Pre-Qualification

Start with a conversation about what you're planning to build and what you expect the project to cost.

Your lender can review your financial information, discuss the financing you're considering, and explain what will be needed to move forward.

You don't necessarily need every construction detail finalized before that first conversation. Starting early can help you understand the financing side before you make commitments elsewhere.

Step 2: Plan & Budget Review

Once you're ready to move forward, your lender will need more information about the project itself.

That may include construction plans, specifications, a detailed project budget, construction contract, proposed timeline, and information about your builder or general contractor.

The goal is to understand what is being built, what it is expected to cost, and how the project will be completed.

This is also where having a realistic budget matters. Construction costs can change, so talk with your builder and lender about how potential cost increases or changes to the original plans would be handled.

Step 3: Approval & Draw Schedule Setup

Once the loan and project have been reviewed and approved, the construction draw process can be established.

Instead of receiving the entire loan amount upfront, funds are generally made available as construction reaches predetermined stages.

Before construction begins, make sure you understand who requests each draw, what documentation is required, and how funds are released. Your builder should understand the process as well.

Step 4: Construction Monitoring & Fund Draws

As construction progresses, draws provide funds for eligible costs associated with completed work.

Depending on the loan, inspections or other documentation may be required before funds are released.

This continues throughout construction until the project is complete and the available construction funds have been disbursed according to the loan terms

Step 5: Conversion to Permanent Financing (if applicable) or Final Payout 

What happens when construction is finished depends on the type of loan you selected at the beginning.

With eligible construction-to-permanent financing, the construction loan may transition to longer-term financing after completion requirements have been satisfied.

With a standalone construction loan, you'll generally need separate permanent financing or another source of funds to pay off the construction loan.

This is why it's important to talk about the end of the loan before you start building, not when construction is almost finished.   

FAQs  

How do draw schedules work? 

A draw schedule determines when construction loan funds become available throughout your project.

Instead of receiving all of the money at once, funds are released as construction progresses through agreed-upon stages. Depending on the loan, documentation or an inspection may be required to confirm that work has been completed before a draw is funded.

Ask your First Western lender about the specific draw process for your loan, including how requests are submitted, how long you should allow for processing, and what your builder will need to provide.

What's the difference between a construction loan and a construction-to-permanent loan? 

A construction loan provides financing for the building phase of a project. If it's a standalone loan, you'll generally need separate financing or another source of funds to pay off the balance when construction is complete.

Construction-to-permanent financing is structured to provide construction funding first and permanent financing afterward, subject to the terms and requirements of the loan.

Before deciding between them, make sure you understand both how you'll finance construction and what will happen when the building is finished.

What documentation do I need to get started? 

The exact requirements can vary depending on your project and financing request.

In addition to your personal and financial information, construction financing may require documents such as building plans and specifications, a construction contract, detailed cost estimates, a project timeline, and information about your builder.

You don't need to wait until you've assembled everything to contact First Western. A lender can give you a specific list based on the project you're considering so you know what to prepare.

Ready to Start Building?

You don't have to wait until the plans are finalized or construction is ready to begin to talk with a lender.

In fact, talking about financing earlier can help you understand your budget, what documentation you'll need, how construction funds will be released, and what your financing will look like when the project is complete.

If you're considering building, bring us what you know so far.

A First Western construction lender can talk through your plans, explain the process, and help you understand what needs to happen before you break ground.