Requirements for Custom Home Construction Loans in Texas

March 6, 2025

Whether you’ve lived in Texas or moved here recently, you likely have a vision of what a custom home would look like. For many families, constructing a new home is the culmination of a dream – the chance to create and own a custom living space tailored to specific needs.

Before you break ground on your dream home, you’ll first need to secure the financing necessary for the construction process. This step is crucial because construction financing differs from pursuing a traditional home mortgage for an established home.

Home construction loans help provide the funds necessary to cover the cost of building a home, but they come with unique requirements and processes. Fortunately, Texas Gulf Bank has proudly served the Southeast Texas Gulf Coast community for over 110 years by offering reliable, strategic lending options, including construction loans.

Learn how custom home construction loans work, the qualification criteria you need to consider, the benefits of choosing Texas Gulf Bank as your lending partner, and our seamless loan application process.

Understanding Custom Home Construction Loans

A home construction loan is a short-term loan designed to fund the various stages of homebuilding. Unlike long-term traditional mortgages, which are based on a completed home’s market value, construction loans are issued based on the estimated value of the home once construction is complete.

New home construction involves a wide range of expenses, so it’s important to have reliable financing that will cover the entire cost of building a home. At Texas Gulf Bank, our home construction loans allow you to effectively manage the different costs and expenses so your home is completed in a timely manner.

Some of the typical expenses incurred during the construction of a custom home include:

Land purchase
Architectural and design fees
Permits and inspections
Site preparation
Contractor labor
Foundation work
Framing
Roofing
Exterior finishes
Plumbing and electrical systems
HVAC systems
Insulation
Interior finishes
Cabinetry and countertops
Appliances
Painting and decorating
Landscaping
Contingency costs (for weather or supply chain delays)

The funds for these loans are disbursed in phases, ensuring the home builders receive payment as they reach specific milestones within the construction plan. By securing a construction loan with Texas Gulf Bank, you may be able to streamline the financing of your custom home project to ensure that each necessary expense is covered efficiently and effectively.

Types of Home Construction Loans

Potential homebuyers have two types of construction loans to choose from when building from the ground up: construction-only loans and construction to mini-permanent loans.

Construction-Only Loan

This short-term loan is intended only for the construction phase but covers all costs related to the building and land development of your new home. Borrowers make interest-only payments based on the funds disbursed during the short-term construction period.

After construction is complete, borrowers must secure a separate loan (a permanent mortgage) to pay off the construction loan. Since this method involves two separate loans, borrowers will also have two sets of closing costs and signings to secure all necessary financing.

Construction to Mini-Permanent Loan

A construction to mini-permanent loan* combines both construction financing and a mini-permanent mortgage into a single loan. Just like a standard construction loan, funds are disbursed as draws directly to the builder as each construction milestone is met.

Like a construction loan, borrowers only make payments on interest accrued from builder draws, but once construction is complete, borrowers may opt to have the single-close construction loan automatically convert into a mini-permanent loan. This conversion simplifies the lending process, allows borrowers to potentially save on closing costs, and may provide lower, budget-friendly monthly payments after construction is complete.

*NOTE: Some creditors may offer one-time-close construction loans that include a permanent mortgage, but Texas Gulf Bank’s one-time close construction loans only include a mini-permanent mortgage.

Requirements for a Home Construction Loan in Texas

Qualifying for a construction loan requires careful planning and financial preparedness. At Texas Gulf Bank, we assess multiple factors to determine loan eligibility.

Credit Score

A strong credit score based on Texas Gulf Bank standards is essential to qualify for a construction loan in Texas, as these types of loans typically carry more risk than traditional mortgages. A higher credit score can result in better loan terms and lower interest rates.

Debt-to-Income Ratio

A low debt-to-income ratio is crucial in securing a construction loan. Our team of loan officers works to ensure that all borrowers can manage the additional debt and make monthly payments without financial strain.

Down Payment

Custom home construction loans may require a higher down payment than traditional mortgages. Depending on credit history and other factors, you may be required to make a down payment of at least 20-30% of the total project cost.

Detailed Construction Plans

At Texas Gulf Bank, we require detailed construction plans, including professional blueprints, a realistic budget, and an estimated timeline for construction. These documents help determine the project’s feasibility and ensure funds are allocated properly.

Licensed and Insured Builder

The ideal loan applicant will have chosen reputable builders and contractors who are licensed and insured. A builder’s experience and track record can significantly affect the approval process.

Home Appraisal

An appraisal of the home’s projected value once construction is complete will help us determine the appropriate loan amount for the construction project. The estimated value must justify the loan size requested by the borrower.

Applicants who meet our loan qualifications and provide us with all necessary documentation may enjoy a seamless, streamlined loan process on the path to helping achieve their dreams of custom home ownership.

Why Choose Texas Gulf Bank for Your Home Construction Loan?

Selecting the right lender is essential to help ensure a smooth home construction loan process. Texas Gulf Bank provides several key benefits for borrowers looking to build a custom home.

Expertise in Construction Financing: With decades of experience in the region, Texas Gulf Bank understands the complexities of financing new home construction. Our expertise ensures that borrowers receive personalized guidance every step of the way.

Personalized Customer Service: We are a relationship-based bank, which means we offer local, personalized assistance. Our local loan officers work directly with borrowers, offer customized loan solutions tailored to individual financial situations, and provide exceptional customer service if questions arise.

Knowledge of the Local Market: As a Texas-based lender, Texas Gulf Bank has an in-depth understanding of regional real estate and construction trends. Our local insight allows us to provide valuable information to borrowers and home builders for a better lending experience.

Choosing Texas Gulf Bank as your lending partner means having access to strategic, cost-effective loan options that may help you construct the home of your dreams.

The Loan Application Process at Texas Gulf Bank

Texas Gulf Bank simplifies the home construction loan process, making it easier for borrowers to secure financing for their dream home. Your streamlined loan application process will begin with an initial assessment with one of our qualified lenders.

We will discuss your construction needs and loan goals and ask that you provide financial documentation as part of our review. The required documents include, but are not limited to:

Completed application for a one-time-close construction loan
3 years of Personal Income Statements
3 years of Federal tax returns, as well as W-2s upon request
Current pay stub showing year-to-date earnings for current year
Two forms of ID
Statement of existing debts
Statement of current assets
Property information
General Contractor or builder information
Construction plans and timelines

Once all required documentation is submitted, our loan review team will promptly evaluate your application and make a final determination on loan approval.

As a community bank, we offer in-house reviews and decisions, which may lead to an expedited loan review process. If approved, you will be positioned to move forward with the initial construction phase.

Texas Gulf Bank: The Partner for Your Home Construction Needs

Building a home in Texas is an exciting but complex process that requires the right financing partner. Texas Gulf Bank stands out as a trusted construction loan lender, offering expertise, competitive terms, and a seamless application process to help borrowers achieve their dreams.

Whether you’re looking to build a primary home for your family, a vacation home on the Texas coast, or a secondary home for your family’s growing needs, we provide personalized solutions tailored to your needs.

Contact Texas Gulf Bank today to get hold of a local lender. So, don’t wait any longer. Let’s discuss custom home construction loans!

All loans subject to credit approval