How to Buy a Custom Home in New Braunfels, TX: Loan Tips From a Mortgage Insider
- Drake Carter
- May 14
- 6 min read
How Do Custom Home Construction Loans Work in New Braunfels?
A custom home construction loan is fundamentally different from a purchase loan. Banks use their own funds and set their own underwriting rules, so down payments, rates, and structures vary widely between lenders. You typically put 5% down (or use existing lot equity) on conforming loans up to about $806,000, and 10 to 20% on jumbo loans above that. The process takes 30 to 35 days to close, you only pay interest on funds drawn, and you'll choose between a one-time close or a two-time close depending on whether you're optimizing for risk or for closing cost savings.
By Drake and Michelle Carter | April 29, 2026
If you're planning to build a custom home in New Braunfels, the financing piece confuses almost every first-time buyer. It's nothing like a traditional purchase loan. We sat down with Konni Williams, a mortgage loan specialist with First United Bank's STX Loan Team and one of KC Custom Homes' preferred lenders, to walk through exactly how the construction loan process works, what your down payment will actually look like, and the questions you should be asking before you sign anything.
Custom Build vs Production Build: Two Different Loan Worlds
Konni explains the distinction at 0:42. When buyers tell us they "built a house," they often mean they bought a production home from D.R. Horton or Lennar. In those cases, the builder held the construction loan and you simply purchased the finished home. That's a completely different financing path than a custom build, where you (the buyer) carry the construction loan and either modify it or refinance it into a permanent loan once the home is finished. This article is about the second path: true custom construction.
Why Construction Loans Vary So Much Between Banks
Konni breaks down underwriting at 2:01. Purchase loans and refinances follow Fannie Mae, Freddie Mac, VA, or FHA guidelines. There's a standard rulebook every lender works from. Construction lending is the opposite. The bank uses its own funds, so each lender sets its own risk tolerance, rates, down payment minimums, and process. That's why you can call three banks about a construction loan and get three completely different quotes, sometimes with five-figure differences in upfront costs.
The takeaway: cheapest is not always best. Some of the lowest quoted rates come from lenders whose process is painful or who refuse to waive retainage.
How Down Payments Actually Work
Konni covers down payment at 3:00. Construction lending is about loan-to-value (LTV), not just dollars down. Konni's bank can lend up to 95% of total project value on conforming loans (loan amount up to about $806,000). Example: lot purchased for $100,000 (already paid off, pure equity), building a $500,000 home. Total project value $600,000. 95% LTV means the bank lends up to $570,000. Your $100,000 in lot equity covers the 5% down, so you can build with no additional cash for the down payment.
If you're north of the conforming limit (think $1M to $1.5M+ projects), expect 10 to 20% down, with 15% as a safe planning number. VA buyers asking about construction loans should know: VA jumbo construction options exist with lower down payments at some lenders, but underwriting guidelines for the permanent loan still apply.
One-Time Close vs Two-Time Close
Konni breaks down the close types at 9:20. This is one of the most asked questions, and the answer matters more than people realize.
One-time close means lower risk. The construction loan automatically modifies into your permanent loan when the home is finished. You're locked in at the rate set at the start, regardless of whether you lose a job partway through construction or rates move significantly. The downside: you're stuck with whatever rate you locked at the beginning of construction, even if the market drops 100 basis points by the time you finish.
Two-time close means refinancing out of the construction loan into a permanent loan when the home is done. The big advantage: cheaper total closing costs. Lenders often refund origination fees and you get title credits like the R8 credit, so you're not paying for two full sets of title policies. In a falling rate environment, you get the chance to capitalize on lower rates at the second close. The trade is risk: if your income changes during construction, requalifying for the permanent loan can be harder.
Konni puts most of her clients on two-time closes because VA loans almost always need a refi on the back end, conforming first plus second loan structures keep payments lower than jumbo, and cash-rich buyers can use asset dissipation strategies.
Thinking about a custom build in New Braunfels, Spring Branch, or Vintage Oaks and need help connecting the right lender to the right builder? Drake and Michelle work with custom builders across the Hill Country and can introduce you to lenders who actually specialize in construction lending. Schedule a free meeting with The Carter Team and we'll walk through your build plan and the financing path that fits.
The Order of Operations: When to Call the Lender
Konni explains the right sequence at 5:13. The mistake she sees constantly: buyers spend months designing a dream home with a builder, only to find out at closing they can't afford it. The right order: 1) Talk to a builder or two to get a rough sense of what your style and finishes will cost. 2) Call the lender BEFORE finalizing plans. A pre-qual takes a soft credit pull and gives you a real budget ceiling. 3) Then go back to the builder with a real number and design within it.
If your top end is $800,000, you're not building a 4,500 square foot home with floating beams. Konni would rather have an expectation-setting conversation two years before you build than rescue you out of a heartbreaking situation later.
The Draw Process: How You Actually Get the Money
Konni walks through draws at 15:05. Most builders use an online platform called Built. Here's the flow: builder requests a draw (e.g., $100,000 for foundation), homeowner approves the draw in Built, bank sends an inspector to confirm the work was done (these are check-the-box inspectors, not quality inspectors), funds release, and you start accruing interest only on what's been drawn.
The credit-card analogy helps: you have access to the money, but you don't pay interest on it until you actually borrow it. That's why your interest payments grow as the home progresses.
Contingencies and Retainage: Two Things to Negotiate Up Front
Konni's bank requires contingencies built into the budget: 5% on fixed-price contracts, 10% on cost-plus. This is your buffer for upgrades, lumber price changes, or surprises. If you don't draw the money, you don't pay interest on it. The reason to include contingency in the budget at all is that the appraiser needs to hit a higher number for the math to work.
Retainage is a Texas-specific issue. State law says banks should hold back 10% on each draw. Most builders require you to waive that. If your lender won't waive retainage, you (the buyer) end up floating the difference between what the bank funds and what the builder needs at each draw, sometimes hundreds of thousands of dollars across a project. That's why "cheap" lenders without retainage waivers cost more in practice.
The One Piece of Advice From a Mortgage Insider
Konni's closing advice at 19:20: plan for cash reserves. The biggest pitfall she sees is buyers running out of cash mid-build. Even with the best builders, you go over budget. You're standing in the middle of construction thinking, "I'll only do this once, let's upgrade the granite," and the small upgrades stack. Life happens too. Going into construction without a cash buffer brings a lot of stress into a process that's already stressful. Don't cut yourself short on liquidity just to qualify.
Bottom Line
Custom home construction loans are not a commodity product. The right lender for your build depends on your military status, your cash position, your loan size, your builder relationship, and your appetite for risk versus closing cost savings. The cheapest quoted rate often comes attached to the most painful process or the worst retainage policy.
If you're considering a custom build in New Braunfels, Spring Branch, Bulverde, or anywhere in the broader Hill Country, we work with custom builders and lenders across the region and can connect you to people who actually specialize in this. Reach out to The Carter Team and we'll help you map out the path from lot to keys.
About Drake and Michelle Carter Drake and Michelle Carter are licensed Texas real estate agents and the founders of The Carter Team at Keller Williams Heritage in New Braunfels. They specialize in helping buyers and sellers navigate the South and Central Texas Hill Country, serving New Braunfels, San Marcos, Canyon Lake, Seguin, Spring Branch, Bulverde, and North San Antonio. Follow along on their YouTube channel for honest, no fluff advice on living and buying in the Hill Country.
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