First time building a home. Are construction loans the way to go if you are building v/ paying cash? I assume they help mitigate risk if something goes wrong.

Well you need to see what the Opportunity cost is of paying cash versus investing the money in another asset. I assume, not checked, your mortgage costs are currently around 7% so pretty high bar.

As for guardrails the lender provides it may help but hiring your own construction inspector to periodically inspect and review the contractors work onsite would be the best option.

Hard to verify quality of work behind a wall if the wall is already there.

I've been retired since July 2024 so maybe ignore this. I did a lot of construction lending for years. Questions I would ask of any lender I talked to.

1. Is it a one or two time close? The difference is that the permanent mortgage closes simultaneously with the construction loan so there's no need to requalify at completion.
2. What is the construction period? Is there an accommodation for delays?
3. Are you required to approve draws by the builder?
4. Is a commencement draw allowed? If so what percentage and must the commencement draw be assigned a % of specific line items?
5. Does the lender vet the builder with a NACAM report and possibly supplier references?
6. Are you allowed to make cash principal reductions during construction?
7. Does the lender have a 3rd party review the budget?
8. Is construction progress inspected before draws are paid?
9. Is there a free float down option on the mortgage should rates improve between closing and completion/conversion?
10. Most important to me. How long have you and your company been involved in construction lending? How many construction projects do you have at present?

I spent decades in mortgage and construction lending and this type of loan is very specific and complicated. Be sure you work with someone that knows this business.

Man, this thread has my attention. Looking to start building in a couple of years in Rockport, and have no idea what I don't know.

Using a home designer that I trust, and he is advising he can give good advice on choosing a builder. We will have some options he tells me. But I am probably on my own for this financial journey.

Where do I find a construction inspector? I assume they are licensed by the state? Jja79, where did you do your lending before you retired. Do we need to find a local bank in the Rockport area? I would love to pick your brain on finding the right lender, as it is apparently way more complicated than finding a regular mortgage lender.

Appreciate the comments.

I have a Gmail address on my profile if you want to communicate. I worked for Amegy Bank and they do construction lending anywhere in Texas.