GUIDE · MONEY
Financing your build
A construction loan is not a mortgage, and the difference decides your budget, your schedule, and sometimes your builder. Here is how construction lending actually works on a steel-frame project.
Start with the loan, not the plan
Talk to a construction lender before you finalize the plan. The lender helps set your real budget, your draw schedule, and in a lot of cases your timeline, so getting them involved early keeps everything in sync. We are happy to loop them in on our first call with you.
A construction loan is not a mortgage. It is a short-term, interest-only line that funds the build in stages, secured by the land and the improvements. When the building is finished, that loan either converts to permanent financing or gets paid off by a separate mortgage.
That distinction drives everything else on this page.
Single-close versus two-close
A single-close loan (sometimes called construction-to-permanent) does both jobs in one transaction. You close once, draw during construction, and the loan automatically converts to a long-term mortgage at completion. One set of closing costs, one credit pull, one appraisal, one rate lock.
A two-close setup uses a short-term construction loan first, then a separate permanent mortgage to pay it off. Two closings, two sets of fees, and your credit and income get re-underwritten at the end — but you keep flexibility on the permanent rate and lender.
Single-close is usually the safer choice for a first-time builder, because you are not exposed to a re-qualification at the finish line. Two-close can win if you expect rates to fall or your income picture will look better in a year.
Ask any lender directly: is this single-close or two-close, and what happens if the build runs long?
How draws actually work
The bank does not hand you the money. It releases it in stages against completed work, and each release is called a draw. A typical schedule on a dried-in steel project looks something like this:
- Site and slab. Excavation, pad, footings, and the concrete pour.
- Steel delivery. The building hits the site. Many lenders will fund a materials draw against a delivery ticket.
- Erection and dry-in. Frame up, roof on, walls sheeted, doors and windows set, penetrations flashed.
- Rough-ins. Electrical, plumbing, and HVAC in the walls.
- Finish. Insulation, drywall, cabinets, flooring, trim.
- Final. Certificate of occupancy or final inspection, punch list closed.
Each draw is triggered by an inspection. Someone from the bank or a third-party inspector confirms the work is in place before the money moves. Interest accrues only on what has been drawn, which is why your payment climbs through the build.
Budget the site alongside the building. Well, septic, power drop, driveway, and dirt work are real line items, and pricing them in from the start keeps the loan appraisal and your finish budget aligned. We include them on every quote.
What banks want to see
Underwriting on a construction loan is heavier than on a purchase mortgage. Come prepared with:
- A signed, itemized contract from an insured builder with a track record and real references. Lump-sum “one number” quotes get pushed back.
- Engineer-sealed drawings. Even in counties with no permit requirement, the bank will want sealed plans. Every building we sell ships with them.
- A line-item budget with a contingency. Five to ten percent is normal. If the builder will not give you line items, that is information.
- Land equity or a down payment. Owned land often counts toward the equity requirement. Typical construction loans want 10 to 25 percent in.
- An appraisal based on the finished value. This is where barndominiums get complicated — see below.
- Builder’s risk insurance in force from the day materials land on site.
How steel-frame appraisals work
Appraisers value a house by comparing it to similar houses that recently sold nearby. Steel-frame residential is now common enough across MO, AR, OK, and TN that comps are usually available, especially when the appraiser is given a good comp packet at inspection.
Two things help the appraisal come in strong: pick a lender whose appraiser has valued steel-frame residential before, and give them the sealed drawings, the finish schedule, and regional steel-frame sales. A local bank that has financed these before is worth more than a marginally better rate from a lender who has not.
Practical order of operations. Get pre-qualified. Get the land under control. Get a signed contract and sealed drawings. Then close the construction loan and start dirt work. Skipping to dirt work first is how people end up carrying a build on a credit line.
Program options worth asking about
Conventional construction loans through a local or regional bank are the most common path and usually the fastest. Community banks in our four states are generally comfortable with steel. In Missouri and Arkansas, our clients most often close through Guaranty Bank — a Missouri-based community lender comfortable with steel-frame residential and our itemized draw schedule. Ask for a construction loan officer familiar with steel-frame builds.
USDA Section 502 loans can finance eligible rural properties with no down payment for qualifying borrowers. There are income limits and property eligibility rules. Read our USDA guide and check the eligibility map before you plan around it.
VA loans are excellent permanent financing for eligible veterans. The standard playbook is a conventional construction loan up front, then a VA refinance at completion. Our VA guide walks through it step by step.
Cash or land-equity builds avoid all of this. If you are building dried-in and finishing over time as budget allows, you may not need a construction loan at all — which is one real advantage of buying the building dried-in instead of turnkey.
Questions to ask your lender on the first call
- Is this single-close or two-close, and what is the rate structure on each leg?
- What is the draw schedule and who performs the inspections?
- Have you financed a steel-frame residence in this county before?
- Does owned land count toward my equity requirement?
- What happens if the build takes longer than the loan term?
- Can the loan fund a dried-in building that I finish myself over time?
That last question matters more than people expect. Some lenders will only fund a build to a certificate of occupancy. If your plan is dried-in now and finish later, say so on the first call.
What we do on our side
We give you an itemized contract, sealed drawings, and a written draw schedule tied to real milestones — slab, steel delivery, dry-in, and finish where applicable. Your lender gets documentation that matches what they are used to seeing, which is half the battle.
We are builders, not lenders, and nothing here is financial advice. Talk to a licensed lender about your specific situation.