October 23, 2026
By Angela Poirier, Chief Loan Specialist, Peoples Trust Company
If you've ever built a home, you know there is a lot to think about. Plans, permits, contractors, budgets, timelines, and inspections all need attention before the first shovel hits the ground.
One of the most common questions I hear is, 'I've never done this before. Where do I start?' People also ask about construction loan rates and how they compare with a home mortgage.
The good news is that you do not need to be an expert in construction lending. That is our job.
At Peoples Trust Company, we help families finance new homes every year. Every project is unique, but the steps are often much the same.
Let's walk through them together.
A construction loan is different from a home mortgage because it finances a house before it is built.
When someone buys an existing home, an appraiser can visit the property, see the finished house, and use recent sales to help set value.
With a construction project, we look at what the home will become.
That means we need detailed plans, specifications, contractor information, and a project budget before construction begins. Using those documents, an appraiser estimates the future value of the finished home.
Think of it as building the financial base before you build the house.
Before we can finance a home, we need to know where it will be built.
Some customers already own their land. Others buy a lot as part of the project. Both paths are common.
If you have owned your land for years and owe little or nothing on it, the equity in that land may play a key part in your plan.
That is one reason every construction loan is a little different. We take the time to look at the full picture before we suggest a solution.
While financing matters, one of the most important choices you will make is your contractor.
A good general contractor does much more than swing a hammer. They coordinate subcontractors, manage schedules, watch quality, and keep the job moving.
My advice is simple: choose a contractor with a strong reputation, good references, proper insurance, and a history of quality work.
The right contractor can make a huge difference in the whole experience.
At Peoples Trust Company, we may allow qualified borrowers to act as their own general contractor. Most customers still prefer an experienced builder, and for good reason. Building a home is a big job, and the right professionals can reduce stress and help avoid delays.
This is where the excitement starts.
Unlike a home mortgage, construction loan funds are not usually paid out all at once.
Instead, money is released in stages as work is finished. These advances are called draws.
For example, funds may be paid after site work is done, the foundation is poured, the frame is up, or other major milestones are reached.
Before a draw is approved, we may inspect the work to confirm that it matches the plans and specifications.
That may sound complex, but the process helps protect both the borrower and the bank while keeping the project on track.
Another question I hear often is what payments look like during construction.
In most cases, borrowers make interest-only payments based on the amount that has actually been advanced.
Because the full loan balance has not been used on day one, payments are often lower in the early stages of construction.
As more draws are released and more of the home is built, the payment changes to match the new balance.
One of my favorite days is when a customer gets the keys to a brand-new home.
Once construction is done, final inspections are completed and any remaining construction items are handled.
The construction financing then moves into permanent financing, which becomes the home mortgage that carries the home forward.
At that point, the focus shifts from building the house to enjoying it.
If you are thinking about building a home, do not let the financing process scare you.
You do not need to know everything about construction loans before you get started. That is what we are here for.
At Peoples Trust Company, our goal is to answer your questions, explain your choices, and guide you through each step. From the first call to the day construction ends, we want you to feel informed and sure of your choices.
Building a home is a journey. With the right plan, the right contractor, and the right lending partner, it can be very rewarding.
Thinking about building? I'd be happy to talk about your project and help you understand your financing options.
Question: How is a construction loan different from a home mortgage?
Short answer: A home mortgage finances an existing home that can be appraised in its current state. A construction loan finances a home before it is built, so the lender uses plans, specifications, contractor information, and the project budget to estimate the value of the finished home.
Question: How do construction loan rates compare with a home mortgage?
Short answer: Construction loan rates can be different from home mortgage rates because the loan is used while the home is still being built. The rate can depend on the lender, your credit, and the loan setup. Ask us to review the options with you.
Question: Why does the lender need detailed plans and contractor information before construction begins?
Short answer: Those details help the lender and appraiser understand what is being built, how much it may cost, and what the finished home may be worth. They also help shape the loan and the draw process during construction.
Question: Can land I already own help with my construction loan?
Short answer: It may. If you already own your land and have little or no debt against it, the equity in that land can become part of your overall financing plan. Because each case is different, the lender reviews the full picture before suggesting a solution.
Question: What are draws, and why are they used?
Short answer: Draws are staged payments of construction loan funds as work is completed. Instead of paying out all loan funds at once, money is usually released at major milestones, such as site work, foundation, or framing. Inspections may be needed before a draw is approved to confirm the work matches the plans.
Question: What happens when construction is finished?
Short answer: Once the home is complete, final inspections are done and any remaining construction items are handled. The construction financing then moves into permanent financing, which becomes the traditional mortgage for the home.
Angela Poirier
Chief Loan Specialist
Peoples Trust Company
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