Building Your Dream: A Step-by-Step Guide to Securing a Construction Loan

June 2025

Building your dream home is an exciting endeavor, but securing financing can seem overwhelming. Construction loans offer a path to realizing your vision, and with careful planning, the process can be smooth and successful.

How Construction Loans Work

Construction loans are short-term loans designed to finance the building of a new home. Unlike traditional mortgages, funds are disbursed in stages, known as “draws,” based on the progress of construction. These draws are released after inspections confirm that specific milestones, such as foundation completion or framing, are met. During the construction phase, you typically pay interest only on the amount drawn. Once construction is complete, the loanconverts to a permanent mortgage.

With a Construction Loan from UCU, you are able to design a loan that fits your specific needs. Here’s a step-by-step guide to help you navigate the journey:

Applying for a Loan

Applying for and getting pre-approved for a construction loan is your first step. This process gives you a clear understanding of your borrowing power and helps you set a realistic budget. At the same time, focus on building a strong credit profile; aiming for a credit score above 700 to qualify for the best interest rates.

Also, Be prepared to provide necessary documentation, such as tax returns, pay stubs, financial statements, and proof of your down payment.

Find the Right Builder and Develop a Plan

Partner with a reputable and experienced builder—UCU can help provide recommendations in your area. Collaborate with your builder to create a detailed construction plan that includes blueprints, a timeline, and a comprehensive budget.

Close on the Loan and Begin Construction

After your loan is approved, you’ll move forward with closing and starting construction. UCU will assist in ensuring that funds are disbursed according to the draw schedule and that the project stays on track throughout the process.

By following these steps and prioritizing creditworthiness, you will be well on your way to securing a construction loan and successfully building your dream home.

Click below to learn more about our construction loan options and get started on your homebuilding journey.

Equal Housing Lender
NMLS 407658