How Construction Loans Work: Choosing the Best Financing for Your New Home

Building a new home is an exciting milestone, but choosing the right construction loan is one of the most important decisions you’ll make early in the process. Before construction begins, homeowners must decide between two main financing options: a construction‑to‑permanent loan or multiple loans—one for construction and one for long‑term financing. Understanding how each option works can help you choose the loan that best fits your budget, timeline, and long‑term financial goals.

Multiple Loans (AKA 2x Close Construction)

A lot of banks offer home construction financing using two separate loans.
The first loan is a short-term loan for the construction phase, typically less than 1 year in length. During the construction phase you will pay interest only on the funds you draw as they are drawn. This loan will then have a final payment due for the entire balance owed once the construction phase ends (maturity).
At maturity, you will need to apply and be approved for a new end loan that will cover the refinance of your construction loan balance. This loan will have separate closing costs and may have a different interest rate based on current market rates.

Construction-to-Permanent Loan

Prevail Bank offers construction to permanent loan programs.
A construction-to-permanent loan is one loan that finances both the construction and the permanent financing of a new home. Advantages of choosing a construction-to-perm loan are:

One application
One closing
One set of loan fees
Ability to lock in your rate up front (avoid risk of higher rates due to market changes)

Prevail Bank offers a variety of construction-to-perm loan programs. Choosing our construction-to-perm loan offers the convenience of one application, one approval, and one loan closing letting you focus on enjoying your new home once it’s built.
The interest rate on your loan is locked in during the loan approval process so there is no need to worry that market fluctuations during construction could result in a higher rate than you anticipated on your end loan. After construction is complete, the loan automatically transitions from interest only to regular monthly payments.

Necessary documentation when doing a Construction-to-Permanent Loan:

Construction contract
Construction cost breakdown
Blueprints or Layout/plans

Benefits of choosing Prevail Bank for your construction loan:

Competitive rates and low closing costs
Easy application process -- apply online at https://www.prevail.bank/personal/lending
Work directly with one of our experienced lenders for the duration of your loan
No hassle conversion to end loan/permanent financing without additional costs

With a construction loan from Prevail Bank, you can get the financing you need to build your home exactly the way you want. Contact our lenders to learn more about how we can create a construction loan that finance the home of your dreams.

Prevail Bank – Member FDIC | Equal Housing Lender
NMLS# 490977