Owner‑Builder Construction Loans: How to Finance Building Your Own Home

Show Notes:

Thinking about building your own home but intimidated by the financing? This episode explains how construction loans for owner‑builders really work, what banks and credit unions look for, and how Landmark’s detailed plans and support can make lenders far more comfortable with your project. Steve walks through common funding paths (cash, proceeds from a sale, pay‑as‑you‑go builds, bridge loans, USDA rural loans, local banks and credit unions) and then breaks down typical construction loan structures: draws paid out in stages, interest charged only on money actually disbursed, and how these convert into a long‑term mortgage. He emphasizes that the biggest differentiator in getting approved is not the panelized system itself but how organized you are—coming in with a complete, accurate plan set and realistic budget instead of half‑baked sketches or generic internet plans. Having clear, detailed house plans helps everyone involved understand the scope of the project. You’ll learn how clear plans help appraisers assign better values, how banks evaluate down payments (including land equity), what pre‑qualification and pre‑approval really mean, and why owner‑builders often walk away with significant equity and long‑term interest savings when they “have their ducks in a row” and treat financing as a strategic part of their build, not an afterthought.

Transcript:

Steve Tuma: And when an appraiser sees a clear and accurate set of plans, they know what’s being appraised, so they can be more specific and likely give a better value.

Interviewer: Welcome everybody to Episode 81 of the Panelized Prefab Kit Home Building Show.

With me, as he usually is, is the President and Founder of Landmark Home and Land Company, a company which has been helping people build their new homes where they want, exactly as they want, nationwide and around the globe since 1993 — Mr. Steve Tuma.

Steve, how you doing, man?

Steve Tuma: Good, good. We’ve got a different one today, different topic. We’ve talked about a lot — design, the panelization, building departments, the efficiencies of building a precision‑built panelized home. But we’re talking money, financing today.

Interviewer: Finally. I’ve been dreading bringing this up because it’s like so many people today, it’s like money is a big thing. But I thought, well, maybe this is the perfect time.

So I thought we’d chat about — before building a new home — what’s the financing process for a build project? I mean, financing, as I said, scares a lot of owner‑builders away before they even start. So today I’d like to go through how construction loans work, what lenders look for when they’re funding a panelized home build project, and how, as with anything, good preparation helps a lot.

In short, what sort of things are lenders looking for when making a decision on whether or not to even give out a loan on a panelized home build?

Steve Tuma: Well, here’s the interesting thing. Some people pay cash — they borrow money from their retirement funds, have a rich uncle, win the lottery, whatever it may be. Or, a lot of people, they sell a home and they have the proceeds to build their next home.

So there’s a variety of different ways that people get the money to build their own home. We’ve also had a lot of people that just build it with what they have. So they’ll say, “Hey, this year I’m going to do the foundation, get the framing up. Next year I’m going to finish the inside.” And maybe it’ll take them nine months, a year, a year and a half, two or three years — but then at the end of it they’ve got a home without a mortgage.

It might take a little longer, depending on the individual family’s financing needs or financing picture, but there are different options. So not everyone chooses to go through financing routes if they have different avenues.

But if they do go through financing — the typical bank situation — generally I’ve found that they tell me that they’ve gotten their better deals with smaller local banks. They’re just more in touch with the community, what’s going on in a community, and their charters, I believe, are just more set up to take care of people.

The USDA also has some loans for rural properties that are more advantageous for people in rural areas, to make sure people live in rural areas — because sometimes big banks don’t always work with that. And then there’s also credit unions. A lot of customers use credit unions. They just seem to offer different flexibilities. And what customers tell me, and from what I’ve experienced, is they just get better deals as well. It’s kind of interesting.

So it’s kind of in the viewpoint of the bank. Some people say, “Well, I talked to my bank — they don’t do owner‑builder loans.” Well, maybe for your financial position they aren’t, but it’s always worth asking. There are banks that customers are able to get owner‑builder loans.

And basically what it is — some banks are just concerned, “Is the person going to finish?” There’s, in my opinion, a fictitious idea that an owner‑builder isn’t motivated to build their home. I think that’s weird because owner‑builders are building their home for their own family, their own personal gain, and it’s something that they choose to do.

But what’s interesting, what we’ve seen, is sometimes banks will be a little skittish if a customer is not organized.

Interviewer: Oh, right. Yeah.

Steve Tuma: So that’s where it is. When they see our set of plans — all the different details, the thought processes, the budget that a customer can put together with our plans — they think, “They’re serious.”

Because sometimes what happens — owner‑builders will try to save money in the wrong place. They’ll be like, “Well, I’m not going to get a real set of plans. I’m just going to get a copy of this incomplete set of plans from the internet, turn it in. And then, if they give me financing, then I’m going to get a real set of plans.” Well, that just shows that it’s not thought out. The details aren’t there.

In order to have an accurate budget, you need to have a complete and accurate set of plans. And that’s where we’re able to help them — so that when they apply for the loan, there’s a complete set of plans with the details they need, so that a bank can then review the plans and say, “Hey, we know what’s being built, therefore we can get an appraisal to see how it works.”

And when an appraiser sees a clear and accurate set of plans, they know what’s being appraised, so they can be more specific and likely give a better value. And then the bank will also look at the plans to review your budget.

So someone could go through and say — you know, the bank might have different ways of calculating what they believe a foundation should cost, or what drywall should cost, or whatever it may be — to go through and verify that it’s a sensible thing.

Sometimes where people are a little skittish around financing is it’s like the bank’s looking at you in a sense of passing judgment — “Does it work?” Well, if you’re organized, you know what you’re doing, you have a well‑thought‑out plan, and you’re being realistic — that’s the type of customer a bank does want.

What they don’t want is someone saying, “Well, you know, Uncle Joe’s going to show up and work for free, and this guy’s going to show up over here, and this guy’s going to help me.” It just doesn’t make sense.

So what they want is someone that’s really thought it through. And customers are successful in getting loans. Of course there’s typical loan things like your credit score, job histories, things like that — where the bank is just looking to make sure that they have, you know, someone that’s in the right position. No one wants to set someone up for failure, including a bank.

Now, I will agree that sometimes banks are a little funny to work with. Sometimes they ask for the same documents over, or they need this, or they need that, or they need deeper information — and maybe what the person up front is telling you compared to the underwriters, the story’s a little bit different. But that’s the nature of the bank, and people just need to see that, “Hey, the bank’s wanting to make sure that they have a good loan so that a customer has the right financing to properly build a house.”

With our great set of plans, our support system, we’re able to help a customer put the details together so that their conversations and processes of applying for a loan and getting the loan are clear. So, you know, we’re here to help. We understand financing. We understand the whole scope of building a home.

So we’re always available if a customer has a question saying, “Hey, what did the bank mean by this?” or “Why are they doing this?” We can help them through the process, because sometimes it’s — if you haven’t been involved with financing a lot, you’re going down a path you haven’t seen. So it might be a little different, and we’re here to offer some clarification.

Interviewer: How much of a hand, if any, does Landmark take in even advising before an owner‑builder begins the process? Or do they need to already have that loan in hand before calling you guys? How does that work?

Steve Tuma: We’re very flexible. We’re here to help the customer for the help that they need.

So if someone’s never applied for a loan before, we’ll talk to them, give them an understanding of what the bank is likely to look for, how we help, the information they’ll need, to what degree they’ll need — from the experiences that we’ve seen.

And other people come through and say, “Hey, Steve, I have the money, let’s go. Let’s go make it happen.”

So just like your builders — sometimes we have customers that have never built, sometimes we have customers that have built multiple homes with us. So we’re here to help them fill in where they need help.

It’s one of these things that, you know, sometimes people think, “Oh, it’s the bank, I’m a little intimidated.” And it’s like — you shouldn’t be intimidated. The bank needs your business. The bank is chartered to help the community. The bank is there to give liquidity, so that you can sell your house and — if someone needs a loan — they can buy your house, then in turn you can buy a new home.

So it’s an important part of the process. I think what it is — a lot of people don’t understand it because it’s not something you deal with every day. You deal with filling your car up with gas, or getting electric in it, or going to the grocery store, or going to the dentist, so you’re used to it. But how many times do you apply for a loan to build a new house?

We understand the complete process, so if a customer ever needs help, we’re here to help them. So it’s not just, “Hey, let’s sell them a panelized home system.” It’s: let’s help them understand the process.

And through the process of financing, if they need it, understanding what the building department wants, getting the plans done right, working with civil engineers, looking at their land — make sure the house fits — helping them sort out where the utilities are, what the energy codes are.

So this is it — we’re kind of like that coach, you know, the little angel on their shoulder, to help them through the process with whatever help they need.

Interviewer: Right.

Steve Tuma: And it’s an amazing process. What’s interesting is, people that understand it — they’re like, “Man, you really help.” But people that maybe aren’t as experienced understanding it — maybe they’ve watched a show or did a little bit of research — once they see it, we’re able to bridge that gap of what they don’t understand, or shorten the learning curve so it’s easier for them to understand and see how everything ties together.

See how the financing ties to your budget, to your schedule, to the cost of materials, and then how — you know — the schedule of what you want to put together so that you’ve got a successful home build.

And because we’ve done it so much, we will take the time so that a customer understands what’s going on in the process. We’re not a company that just sells you a piece of wood and says, “Hey, good luck.” We’re here throughout the process.

I keep in touch with customers even after we’ve delivered the home, even after they’ve completely framed it, just to see how they’re doing. “Is there anything we can help?” And invariably they’ll be like, “Well, I had a little glitch here, hey something here…” and we’re able to help move it along.

We enjoy what we do. It’s a lot of fun. And it’s just cool seeing — you know — helping a customer get a home. And you know, it’s kind of cool also — sometimes we’re sitting there, it’s Sunday night, taking it easy, and someone sends a message and says, “Hey Steve, here we are, it’s our first Christmas,” or, “Hey, here we are, we’re all ready for the delivery tomorrow morning.”

So we’re here to help people. And you know, we get all types of questions, and we’ve got a lot of experience to give them a specific answer to the specific question that they have, of how it applies to their building site — which I think they’ll find very helpful and important: how they ask a question, what’s the answer for what they’re trying to achieve. That’s where we can help. It’s cool.

Interviewer: Back to loans for a minute. Is there a specific type of loan that a panelized home builder would want to be trying to line up, or is there a variety of loan types?

Steve Tuma: Generally a typical construction loan. It’s applying — the bank may categorize things differently if you’re buying a modular, if you’re buying a panelized home — but generally panelized falls right within stick‑built.

So there’s nothing really that different on their application and working with the bank. It’s just generally a construction loan.

Now, I should clarify that the construction loan is where the bank is paying money out to build. So they might have a time period — nine months, a year, six months, whatever it is — and then they distribute the money according to a schedule.

The schedule may be a percentage of completion, or it might be a line item — basically saying, “Hey, once you do excavation and the foundation, we’ll issue money for that,” and then they go through the processes. So that’s the type of loan that they have.

And then once the home is done, they generally have another loan — just the typical mortgage: 10, 15, 20, 30 years, whatever it is that makes sense for the customer. That’s generally the position that they buy.

But there are some banks that do one‑close. So you lock in, say, your 20‑ or 30‑year mortgage, and maybe 6–9 months or a year’s construction where they’re putting money out, and then the balance is where you pay it back. So sometimes there’s differences in the way that the banks structure them — if it’s a one‑close or a two‑close loan.

And there are companies that specialize in construction loans only — you know, for owner‑builders and different situations — and sometimes those make sense. But the majority of customers just go to a local credit union or bank that they may have a relationship with, or maybe they find a new one.

So the banking is something that — it might take a little bit of extra work and understanding to get through it, but customers are able to do it. It really isn’t the actual application. They need to know your credit and all those things, just like you would with any mortgage. The difference with construction is you’re building something, so they need to know what you’re building, and the costs, and how the money is distributed through the building processes.

Interviewer: What about buying the land? Or is the land usually purchased first, or can it be one big deal? How does it usually work? Is the land there first before the home loan is secured, or is it usually all in one?

Steve Tuma: Well, it depends on the person — the customer’s situation. Some customers own the land — they’ve had it for a while, they inherited it, they bought it, or maybe they just bought it.

So sometimes the land is purchased through the construction loan. They’ll find a piece of land, work with the bank, and say, “Hey, we’re going to close in 60 days.” We get them all the details so that — you know, for the house — they go to financing, they close the land, and move forward. So the actual payment would be at the land closing.

And other times, if they own the land — or they own the land in name but there’s a little bit to be paid off — the bank will pay the balance off so that they’re in first‑lien position. The bank wants to be in first‑lien position so that they, in a sense, control the financing of the project.

And then they go through.

Now, to backstep a little bit, generally banks want a down payment — whether it’s 5 percent, 10, 20, whatever it may be for their guidelines. Generally it’s 10–20 percent. Sometimes there are more aggressive programs.

They’ll want the customer to put their money in first. So sometimes it’s actual cash if they need to close on the land. Other times it can be equity in the land.

So the down payment could be the value that’s already present in the land.

I don’t want to get too deep, because some of this can be complex. But basically, the bank can put a loan on land that you own. They can put a loan on land that you own but maybe owe a little bit. Or they can work on a complete piece of land that you still have to take ownership of at the closing of when you purchase the land. And then they distribute money.

There’s a lot of different ways. Some banks will also do what’s called a bridge loan. If you have an existing home with equity, they’ll work with you on the financing of your existing home to get equity to build a new home. And then you could sell your first home when you’re ready.

Now, someone’s got to be in a stronger financial position to do that. And depending upon how the bank works, there are ways to work these different bridge loans.

So things like that — they can be a little bit bank‑by‑bank, and financial position of each customer is specific, and the bank will provide different flexibilities just on what the deal is.

But the financing is a very important part of it.

Now sometimes people say, “Well, the interest rate of the construction loan is a little higher.” It’s like, well, the bank’s doing other services — they’re issuing checks, they’re doing inspections. And then, for that time period — say the 6–9 months or a year — the dollars out really aren’t that big.

And people generally only pay interest on the money that’s actually distributed.

So if they have a $400,000 loan, they’re not paying interest on $400,000. Say they’ve put $20,000 out — you pay interest on the $20,000. And say in three weeks you ask for $40,000, then you’re paying interest on the $20,000 plus the $40,000 — $60,000.

So the accumulation of the interest is not as bad as people may initially think if they don’t understand how it’s structured. Banks actually provide a very good value, and there’s a lot of good banks out there. People just have to find one that makes sense for their scenario and get it put together.

Interviewer: Well, aside from all we’ve discussed here today, tell me — just you, Steve Tuma, President of Landmark Home and Land Company — what’s the one best piece of advice you might give to a potential homeowner‑builder before they go seeking a loan?

Steve Tuma: Have your ducks in a row. I mean, really — that’s it. What are you building?

Don’t go to them with some sketch that you drew yourself. Don’t go to them with an incomplete set of plans without details. Don’t go to them with something you just printed off the website thinking that you’re saving money. It’s a garbage‑in, garbage‑out type thing.

So you want to have a well‑thought‑out process of a house that’s sensible for your financing.

Now, some people say, “Hey, I don’t understand how a bank does the financing.” You can always call them and get a pre‑qualification, which is basically where they’ll talk to you and say:

“How much do you make?”
“What’s your credit?”
“What are your bills?”
“What is the scenario?”

And they’ll go through and come up and say, “Hey, you’re good for X amount of money.” Sometimes they do that right on a phone call.

Just go through and say, “Hey, you’re here.” Then there’s the pre‑approval, where they’re kind of going through and gathering documents to verify that.

So if someone says they make $90,000 a year, they want to know that you’re making $90,000 a year. They’ll check with your employer, they’ll check your credit, they’ll check your bills, and then they’ll re‑verify that.

So the best thing to do is really just be organized. Just as if someone was coming to you to help you. If someone said, “Hey, can you help me next week with something?” you’re going to be like, “Well, what are you talking about?” Compared to, “Hey, can you help me next week with this, this, and this?” You’re able to help that person better.

And it’s the same thing with the bank. So if you make a claim that you have so much money, your documents should verify it.

And then, when you go in there with a set of plans — having an accurate set of plans so it’s easy for the loan officer to understand what you’re doing — they can then properly package it for the underwriters. And if the underwriters understand it, it makes sense. There’s just a better chance that you’re going to get a better loan out of it.

So sometimes people get a little frustrated. A bank will say, “Hey, can you send me these documents again?” They’ll be like, “Well, I gave them to you already.” But documents have a life. They may only have a 30‑day life — like a credit report. If for some reason the processing is a little longer, or something’s going on, they may have to pull another one, or they might have to get job verifications or whatever.

So sometimes customers might be a little frustrated, but that’s the nature of banking and the time it takes for them to go through and get things put together. Getting a good loan is part of the financial picture.

Oh, and by the way, a lot of people are owner‑builders because of the equity that they can gain while building and the money savings.

Interviewer: Oh, right.

Steve Tuma: So, for example, if someone says, “Hey, you know, this would be a $400,000 build, but they’re able to do work, do things, save money, and do it for $300,000,” the value of that $100,000 savings over the life of the loan could be $200,000 or $300,000 in interest over the long term.

So shopping the right loan is actually a long‑term financial decision that can help people.

So people aren’t just building their own home to:

Control the quality
Know what’s there
Know that the home is being built right

They’re doing it because of the financial situation and the money savings and the savings of payments to the bank over time. So it’s pretty cool.

If someone wants to get a little deeper in that, we can get into details, or we can work with their banker to get more specific numbers. But it’s an important part of it.

Interviewer: I can see that you’ve spent a lot of time and a lot of years learning all this stuff.

Steve Tuma: Yeah. Well, it’s kind of interesting — once you look at it, you go, “Oh, that’s pretty simple.” But I can understand where someone’s sitting there going, “Okay, I gotta build a house, we gotta do plans, I gotta get contractors, I gotta do this, I gotta deal with the bank — what is it?”

But I think we’re able to put some sanity to it by breaking it down and how it goes together, how they work together, and the prioritization of what you need to take care of and the sequence of how you’re able to.

And I think that’s what’s there.

Like I mentioned before, we’re not just a panel supplier. A lot of people might find us going, “Oh, panelized homes,” or however they find us online, or through references, through friends or recommendations, or whatever it may be. We’re really helping them with the complete project of getting from the concept of building your home to making sure it’s built right.

And that is a huge value that I’m not sure every customer, when they initially contact us, always realizes — the level of support that we supply.

You go to a lumberyard — yeah, they’ll sell you a piece of wood. Maybe it’s even good for your project, maybe it isn’t. It’s: what are you doing?

So let’s look at the broad view of your house — in a sense, let’s look at the forest, but let’s zoom in and look at the plant, let’s look at the tree. Let’s understand what’s going on.

That’s the key element of it. And tying all this stuff together — it’s actually pretty exciting. When someone can sit back and go, “Steve, I’m saving $75,000, $100,000 building this house. And over the course of my mortgage it’s going to save me $200,000 or $300,000.”

So what more sophisticated customers do is — let’s just say that there’s a certain payment — the money that they save by having a lower payment by building their own home, they go invest that — in the stock market, buy another piece of real estate, whatever it might be.

So the financial accumulation of wealth over time is there. And the American dream is owning a home — and that’s where a big portion of your retirement is.

It’s kind of an amazing thing if someone really sits back to say, “Hey, this is how owner‑builders are helped, especially with Landmark Home and Land Company’s process, to see the significant pivot point and how it can help make for a brighter future for a family.” It’s pretty amazing.

It’s interesting to look back and go, “Wow, these people just didn’t get a house — a place to sleep — but how it shifted the trajectory of their life.” That’s pretty amazing. It’s one of the coolest parts of the business.

Interviewer: Fantastic.

Well, that’s going to do it for this episode of the Panelized Prefab Kit Home Building Show. But before we let you go, once again, Steve, tell our listeners how they can find out more about Landmark Home and Land Company and what you guys are doing over there.

Steve Tuma: We’ve got a pretty cool website at LHLC.com. There’s a lot of information there where people can look at it, get ideas, contact us, and find out specifically how it applies to their project — for their piece of land, for the home that they want to build.

Our website is LHLC.com. So again, that’s LHLC.com.

There’s a variety of videos on there. These podcasts are on there. Discussions on how we help, the materials we supply, our customization capabilities, and other details.

And the cool thing is, there’s thousands of plans. So someone could go through there and say, “Hey, I want a Victorian, I want a farmhouse, I want a ranch.” Go through a selection, pick a house out they like. They can send us an email, we’ll get them details and pricing. And then, if it’s something that kind of makes sense for them, we can continue the conversation at their convenience and get into the details of:

Getting plans going
The finer details of making sure the plans are done right
And how it applies to their project

So we’re very customer‑service oriented, and we enjoy what we do. So we’ll take the time to go through and make sure that a customer understands what it is, so that they can make the decision and understand the value that Landmark Home and Land Company supplies to owner‑builders.

By the way, owner‑builders are called self‑builders, do‑it‑yourselfers — there’s a variety of different words — but we’re here to help people. And we have helped professional builders as well: smaller developers, family teams that get together and build houses, or they build for other family members, or the father and the cousin will go through and do an investment property.

So we can help people and we enjoy what we do. We want to help people and talk to them and let them know what we do so that they can make their best decision to move forward.

Interviewer: Excellent, man. Once again, there you have it.

Thank you again, Steve, and thanks to all of you for listening to another informative episode of the Panelized Prefab Kit Home Building Show.

So for Landmark Home and Land Company President Steve Tuma and myself, have a great week and we will see you next time.

Thanks again, Steve.

Steve Tuma: Thank you. Have a great day.