Your lender decides that, and the number they approve defines the scope of your build. A custom construction loan generally requires about 20 percent down, compared with roughly 3 percent to buy a finished spec home. Your land must also be paid off before anything is built on it.
The short version
- Construction loans typically need about 20 percent down. Spec home purchases need about 3 percent.
- Whatever your lender approves becomes the budget the house gets designed inside.
- If you still owe on your land, the first item out of the construction loan pays it off.
- Banks release money in 30 day draws after an inspector verifies the completed work.
- Lien waivers are required on anything over $5,000, and they protect you.
How much do you need for a down payment on a construction loan?
Generally about 20 percent of the total project cost. Buying a finished spec home usually takes closer to 3 percent. That gap is one of the biggest practical differences between building and buying, and most people do not learn about it until they are already attached to a plan.
It changes the sequence too. Before real design work begins you need lender pre-approval, because the approved number sets the scope. Everything gets designed inside it rather than the other way around.
The first conversation with a builder does not require any of this. Pricing and design do.
How much does it cost to build a custom home in the Tri-Cities?
What happens to your land in a construction loan?
It has to be paid off before anything gets built on it. If you still owe money on the parcel, the first item out of the construction loan clears that balance. The loan then continues funding the build, and the permanent mortgage wraps in at the end.
“The first item that comes out of the construction loan is to pay off the land,” John Worlund says.
Whether the land gets financed separately or rolled into the construction loan is your bank’s policy, driven by your equity position and that 20 percent requirement. It is not the builder’s decision.
Some lenders offer construction through mortgage products with everything built in. Those typically do not lock your final mortgage rate until the last 30 days, once the appraisal is done and the job cost is final.
Should I build on my own land or buy from a builder?
How does the bank actually release the money?
In draws, roughly every 30 days. The builder submits the completed line items, you review and initial them, the bank sends an inspector to verify the work is genuinely done, and payment is released once verification comes back. At Anasazi that release usually lands within three to four days.
If you are paying out of pocket instead, Anasazi uses a progress based schedule:
| Milestone | Draw |
|---|---|
| Initial | 10% |
| Concrete poured | 20% |
| Framing complete | 20% |
| Drywall | 20% |
| After trim and painting | 20% |
| Certificate of Occupancy | 10% |
“We do not take fifty percent draws,” John says. “We try to make it very based upon the work progress. It allows the homeowner and the builder to know when the next draw point is.”
Large front loaded draws are exactly the structure that lets a bad actor take money and disappear, which makes the schedule a safety question rather than an accounting one.
What are lien waivers and why do they matter?
Your bank will require them on anything over $5,000. When a subcontractor gets paid, he signs a partial lien waiver. At completion he signs a final one. Together they prevent a trade from placing a lien on your finished home over a payment dispute you were never part of.
Most buyers do not know to ask about this, and it is one of the more valuable protections in the whole arrangement.
Ask your builder how lien waivers are handled on his jobs. The answer should be immediate and specific.
What does the bank need from your builder?
More than most people expect. A bank construction loan requires a full documentation package: cost sheets, specifications and plans, assembled before the number is final. Paying cash or using private financing skips this entirely, which is why those projects move faster through the pre construction stage.
This is part of why the front half of a custom build takes as long as it does. The full stage by stage process is here, including the roughly thirty separate contacts across trades and agencies that go into producing a real total.
Anasazi’s contract is signed three ways, by you, by Anasazi and by your bank, which is only possible because the price is fixed rather than open ended.
Fixed price versus cost plus home building contracts
Common questions about custom home financing
Do I need pre-approval before contacting a builder?
Not for the first conversation, which is free. You need it before design work and real pricing begin.
What activates the contract at Anasazi?
A $3,000 down payment, followed by roughly 30 days while your lender finalizes the construction loan.
Can architect and design fees be financed?
Banks can usually credit those back as a line item on presentation of a paid receipt. Confirm with your specific lender.
Does site work get financed too?
On a build on your lot project you receive two numbers, the house and the site development, and both are part of the project cost the lender is underwriting.
Why does the bank send its own inspector?
To verify the line items being claimed are actually complete before releasing that draw. It is a protection for the lender and, indirectly, for you.
Your lender’s number is the honest starting point for every other decision. Once you have it, a free first conversation will tell you what it builds in Pasco, Kennewick or Richland. If your land is not developed yet, that budget has a second half.
Related: What can I build with a $400,000 budget? · How to hire a custom home builder
