Texas Construction Loan Guide 2026: Build Your Dream Home from the Ground Up
Everything Texas homebuyers and veterans need to know about construction loans — One-Time Close vs Two-Time Close, draw schedules, builder requirements, and how to qualify.
LET’S TALK →📋 What’s In This Guide
What Is a Texas Construction Loan?
A construction loan is a short-term financing product that funds the building of a new home from the ground up. Instead of receiving a lump sum like a traditional mortgage, funds are disbursed in stages — called draws — as construction milestones are completed and verified.
Texas is one of the most active custom home building markets in the country. From Hill Country acreage to Houston suburbs to rural East Texas, thousands of Texans build new homes each year rather than buying existing ones. A construction loan makes that possible — even with limited cash reserves.
Once the home is complete, the construction loan either converts to a permanent mortgage (One-Time Close) or is paid off with a new separate mortgage (Two-Time Close). We’ll cover both options below.
Explore all your options on our full Texas Construction Loan cornerstone page, which covers every loan type in depth.
One-Time Close vs Two-Time Close Construction Loans
This is the most important decision you’ll make when financing a new build in Texas. Here’s what each means and how they compare:
✅ One-Time Close (OTC)
Construction and permanent mortgage combined into a single loan with one closing.
- One closing, one set of closing costs
- Rate locked upfront at closing
- Auto-converts to permanent loan at completion
- No re-qualification required after build
- Available with VA ($0 down), FHA (3.5% down), Conventional
- Best for: Cost control, rate certainty, veterans
⚠️ Two-Time Close (TTC)
Separate construction loan and permanent mortgage — two closings, two sets of closing costs.
- Two closings and two rounds of closing costs
- Rate on permanent loan set at second closing
- Must re-qualify at completion
- More flexibility in some lender scenarios
- Useful if financial situation may improve by completion
- Best for: Complex projects, flexible permanent financing
💡 Our Recommendation: For most Texas borrowers — especially veterans — the One-Time Close is the smarter choice. One closing means lower total costs and no rate risk between build start and completion. We’ll help you decide which fits your specific project.
Construction Loan Types Available in Texas
Texas homebuilders can access construction financing through several loan programs. Here’s how they compare:
| Loan Type | Down Payment | Min Credit | PMI | Best For |
|---|---|---|---|---|
| VA Construction | $0 | 580+ | None | Eligible veterans / active duty |
| FHA Construction | 3.5% | 580+ | MIP required | First-time buyers, lower credit |
| Conventional | 5–20% | 620+ | If <20% down | Buyers with strong credit & equity |
Veterans building in Texas should strongly consider the VA construction loan — it’s the only program offering true zero-down financing for a custom build. First-time buyers without military service should explore the FHA construction loan, which requires just 3.5% down.
Ready to Build in Texas?
We’ll help you match the right construction loan to your project, timeline, and budget — before you sign a single contract.
LET’S TALK →How to Qualify for a Texas Construction Loan
Construction loans have slightly stricter requirements than standard purchase mortgages because the lender is taking on more risk — the home doesn’t exist yet as collateral. Here’s what lenders typically look for:
📊 Credit Score
620+ for conventional, 580+ for VA and FHA. A score above 680 improves your rate and approval odds significantly.
💼 Stable Income
2-year employment history preferred. Self-employed borrowers will need 2 years of tax returns. Active duty BAH and BAS income counts for VA loans.
📉 Debt-to-Income Ratio
DTI (the share of your gross monthly income going to debt payments) should ideally be under 43–45%. VA loans may allow higher DTI with compensating factors.
🏗️ Approved Builder
Your general contractor must be lender-approved with proof of insurance, a project portfolio, and a clean lien history. Texas does not require a state GC license, but lender approval is still required.
📄 Construction Plans
Lenders require full plans, specifications, and a signed contract with your builder including a fixed-price or guaranteed maximum price (GMP) before closing.
🏡 Land Ownership or Purchase
If you already own the land, its equity can serve as part of your down payment. If you’re buying land simultaneously, the purchase is typically bundled into the construction loan.
⚠️ Texas GC Licensing Note: Unlike most states, Texas does not license general contractors at the state level. This means anyone can call themselves a GC in Texas. That makes lender builder approval even more important — it’s your protection against an underqualified contractor walking off the job or creating liens.
How the Draw Schedule Works in Texas
Rather than releasing all funds at once, construction lenders in Texas disburse money in 4 to 5 draws tied to verified construction milestones. Each draw requires an inspection before funds are released to your builder.
This protects you as the borrower — funds only flow when work is confirmed complete, which keeps your contractor accountable and your project on track.
Foundation & Slab
Lot clearing, excavation, foundation poured and cured. Typically 10–20% of total loan disbursed.
Framing & Rough-In
Walls, roof structure, rough electrical, plumbing, and HVAC installed. Often the largest single draw — 25–35% of total.
Insulation, Drywall & Interior
Insulation, drywall hung and finished, windows and doors installed. 20–25% of total disbursed.
Fixtures, Finishes & Punch List
Flooring, cabinetry, appliances, trim, paint, and landscaping. 15–20% of total disbursed.
Final Completion & Certificate of Occupancy 🎉
Final walkthrough, punch list complete, certificate of occupancy issued. Final draw released and loan converts to permanent mortgage (One-Time Close) or new loan closes (Two-Time Close).
Draw structures vary by lender. Some programs use 4 draws, some use 5. We’ll walk you through your specific draw schedule before you sign anything.
Finding & Approving a Builder in Texas
Choosing the right general contractor is the most important decision in your construction project — especially in Texas, where the state does not require a GC license. Here’s how to evaluate and get your builder approved:
What Lenders Require from Texas Builders
- General liability insurance ($1M+ coverage minimum)
- Portfolio of recently completed comparable projects
- Clean lien history — no outstanding mechanics liens
- Signed construction contract with fixed or guaranteed-maximum pricing
- References from previous clients and subcontractors
- Business license and tax ID (EIN)
Questions to Ask Before You Hire
- How many projects are you currently building simultaneously?
- Can you provide a fixed-price contract or GMP (not just a bid)?
- Who handles subcontractor management and payment?
- What happens if costs exceed the budget?
- Have you worked with lender draw inspections before?
💡 We have relationships with vetted Texas builders across multiple markets. If you’re still searching for a contractor, reach out — we may be able to connect you with builders already on our approved list.
Step-by-Step: The Texas Construction Loan Process
Initial Consultation & Pre-Approval
We review your credit, income, and goals. We determine which loan program fits best — VA, FHA, or conventional — and issue a pre-approval so you know your budget before talking to builders.
Secure Land & Select Builder
Find your lot (or confirm your existing land) and select a lender-approved builder. Get a signed contract with full scope, specs, and fixed pricing.
Submit Full Loan Application
We compile your financial documents, construction plans, builder credentials, and submit the complete package to underwriting for approval.
Appraisal & Underwriting
An appraiser reviews the plans to determine the “as-completed” value of the home. Underwriting reviews your full file and approves the loan based on projected value.
Closing Day
You sign your loan documents at the title company. For One-Time Close, this is the only closing. For Two-Time Close, this is just the construction phase closing.
Construction Begins — Draws Released
Your builder begins work. As each milestone is reached and inspected, we release the corresponding draw directly to your builder. You typically make interest-only payments during construction.
Move In — Loan Converts 🎉
Certificate of occupancy issued. For OTC loans, your construction loan automatically converts to your permanent mortgage and regular payments begin. You’re home.
Want to Know What You Qualify For?
No upfront credit check. No commitment. Just a real conversation about your construction plans and what financing options fit your situation.
LET’S TALK →What to Budget For: Texas Construction Loan Costs
Beyond the home construction cost itself, here are the additional expenses Texas borrowers should plan for when using a construction loan:
| Cost Item | Typical Range | Notes |
|---|---|---|
| Down Payment | $0 (VA) / 3.5% FHA / 5–20% Conv. | Land equity can substitute for cash down |
| Closing Costs | 2–5% of loan amount | One-Time Close = one set of costs |
| Construction Interest (during build) | Interest-only on drawn balance | Only pay interest on funds disbursed, not full loan |
| Draw Inspection Fees | $75–$200 per inspection | 4–5 inspections over the build |
| Builder Contingency | 5–10% of build cost | Critical buffer — overruns happen in Texas heat & weather |
| Permits & Site Prep | $1,000–$15,000+ | Varies widely by county and site conditions |
💡 Pro Tip: If you own land outright, that equity typically counts as your down payment — even for conventional construction loans. This can get you to zero out-of-pocket at closing even without VA eligibility.
Frequently Asked Questions — Texas Construction Loans
Adam Bartling
Retired Army Captain | Construction Loan Specialist | NMLS# 2213358
Adam Bartling is a retired U.S. Army Captain and construction loan specialist serving Texas homebuilders and veterans. His team helps clients navigate the entire build process — from pre-approval and builder selection to draw management and final conversion. With an education-first approach and no upfront credit check, Adam guides every client through one of the most complex mortgage transactions in the industry. Serving Texas & 30+ states.
📎 Related Construction & Home Loan Resources
Let’s Build Something in Texas.
From your first conversation about land to the day you get your keys, we’ll be with you every step of the way. No upfront credit check. No pressure. Just honest guidance on one of the most rewarding decisions you’ll ever make.
LET’S TALK →Serving Texas & 30+ States | No Upfront Credit Check
This is not a commitment to lend. Rates, terms, and availability subject to change. Not all applicants will qualify. Construction loan programs subject to lender and builder approval.