How to Finance Building Your Dream Home in Central Arkansas

There’s nothing quite like designing a home from the ground up. From picking the floor plan to choosing finishes, building a new construction home gives you the freedom to create a space that’s completely yours.

But while the idea is exciting, the financial side of building is very different from buying an existing home. That’s where construction loans come into play. If you’re considering building your dream home in Central Arkansas, here’s what you need to know about how construction loans work and what lenders look for before approving them.

Step 1: Buying the Land

Before you can build, you’ll need land. Some buyers pay cash for their lot, but many finance it through a land loan or roll it into a construction loan. Keep in mind that lenders usually want to see detailed building plans and a qualified builder before financing the land.

Step 2: The Construction Loan

A construction loan is a short-term loan (usually 6–18 months) that funds the actual building process. Unlike a regular mortgage, it’s interest-only while the home is being built.

Key things to know:

• Funds are released in stages – called “draws” – as construction progresses.

• Inspections happen at each stage before more money is released.

• Communication with your builder and lender is essential to keep things on track.

Step 3: Permanent Financing

Once your home is complete, you’ll need long-term financing (a traditional mortgage) to pay off the construction loan. Some lenders offer construction-to-permanent loans, which roll everything into one closing. Others require two separate closings—one for construction and one for the mortgage.

What Lenders Look For

Construction loans are considered riskier than traditional mortgages, so lenders set stricter requirements. Expect them to review:

• Credit & Income – Strong credit, stable income, and low debt-to-income ratio are important.

• Down Payment – Most lenders require 20–25% down.

• Builder Qualifications – Your builder must be licensed, insured, and approved by the lender.

• Home Plans & Budget – Lenders will appraise your future home based on blueprints, costs, and projected value.

Types of Construction Loans

Not all construction loans are the same. Here are the main options:

• Construction-to-Permanent Loan – One closing, loan automatically converts to a mortgage. Saves time and money but can be harder to qualify for.

• Two-Time Close Loan – One loan for construction, another for the mortgage. More flexible but comes with extra closing costs.

• Construction-Only Loan – Covers just the build. You’ll need to refinance into a mortgage when the home is done.

Planning Ahead: Smart Tips for Success

• Budget for living expenses – Remember, you’ll still need to pay rent or your current mortgage while your new home is under construction.

• Expect the unexpected – Set aside savings for cost overruns or delays.

• Stay involved – Regular check-ins with your builder and lender help avoid surprises.

Is Building Right for You?

Building a custom home isn’t for everyone—it requires patience, planning, and financial preparation. But if you’re ready, it can be one of the most rewarding paths to homeownership.

As a Central Arkansas Realtor, I work with buyers building in places like Bryant, Benton, Cabot, Conway, and West Little Rock. From connecting you with trusted builders and lenders to helping you navigate financing, I’ll walk you through each step of the process.

📲 Ready to explore building your dream home in Central Arkansas? Let’s talk about your options for land, builders, and construction financing today.