When you’re building a home, one of the biggest questions that comes up early in the process is this: “Do I have to pay anything out of pocket before closing, or does the construction loan cover everything?”
It’s a great question — and the answer is: Most of the time, the lender fronts the money through construction draws… but there are situations where buyers pay certain items upfront.
Let’s break down how it really works, using a real client scenario to make it simple and stress-free.
How Construction Loan Funding Typically Works
In most new-construction scenarios, costs are handled through construction draws.
Here’s the general flow:
- The builder submits each phase of completed work to the lender.
- The lender verifies the work.
- The lender then releases funds from the construction loan.
Most materials, labor, and scheduled expenses are pulled from that draw process, meaning buyers aren’t constantly pulling out their card or checkbook during construction.
But… this doesn’t mean everything is always covered upfront.
When Clients DoPay Out of Pocket Before a Draw
Here’s a perfect example:
I have a client currently building. He wanted a very specific front door, one that required a long lead time to order. The construction loan wasn’t fully finalized yet, but the builder said: “If you want this door, we need to order it now.”
In this case, he simply paid for the door upfront. Later, when the project reached the stage where the door is installed, that cost will be reimbursed back to him as part of the draw because it was already included in the total construction budget.
This is pretty common with:
- Custom doors
- Specialty windows
- Upgraded appliances
- Unique finishes with long lead times
- Items that must be ordered early to keep the build on schedule
The key is that the item must already be part of the approved construction budget.
When it is, reimbursement usually happens seamlessly.
So… Will You Have Upfront Costs?
The honest answer: It depends on the builder, the lender, and the timing of your selections.
Most buyers never pay anything out of pocket until the down payment is due.
But buyers can choose to pay upfront if:
- Something needs to be ordered before the loan closes
- You’re selecting custom items that must be secured quickly
- You prefer to control the timing of a purchase
And just as importantly:
You never have to pay upfront unless you choose to.
My client could have waited. He simply didn’t want to risk the delay.
How to Decide If You Should Pay Now or Wait
Here’s the best way to approach it:
- Ask your builder:
“Is this required now, or can it be included in the normal draw process?” - Ask your lender:
“If I pay upfront, will it be reimbursed later as long as it’s in the construction budget?”
Because every build is different, what works for one buyer may not be ideal for another.
What Buyers Should Expect Financially During a Build
A few helpful reminders:
- You may have earnest money or a builder deposit depending on the community and contract.
- Most construction loans do NOT require constant buyer spending during the build.
- Paying something upfront is not always builder-required.
Client Testimonial
“We have had the privilege of working with Ashley buying and selling. Our latest experience in selling our home was very difficult and stressful due to circumstances beyond our control. Ashley went above and beyond to complete the transaction. She competently and compassionately walked us through a more complicated process than normal. We count Ashley a friend and would highly recommend her for your real-estate needs.“
— Joni Pettikas
FAQs – Construction Loan Costs & Upfront Expenses
1. Do I have to buy materials upfront when building?
Usually no. Most materials are included in the builder’s budget and are paid through the lender’s draw schedule. Upfront costs only happen when a buyer chooses to order something early.
2. If I pay for an upgrade upfront, will I get reimbursed?
If the item is already part of the approved construction budget, the lender typically reimburses you during the draw for that phase.
3. Who decides whether something must be ordered early?
Normally the builder advises you. If timing impacts the build schedule, they may recommend ordering in advance.
4. Can I wait for the construction loan to finalize before buying upgrades?
In many cases, yes. But custom or long-lead-time items may need to be secured early to avoid delays.
5. Should I plan for out-of-pocket costs just in case?
It’s wise to keep a small buffer available for unexpected selection deadlines or upgrades you fall in love with…but for most builds, large upfront spending isn’t required.
Need Someone to Guide You Through the Build?
Building a home is exciting but it comes with decisions, timelines, and financial steps that deserve expert guidance.
If you want a REALTOR® who:
- Communicates with your lender
- Works closely with your builder
- Clarifies every step
- Helps you avoid surprises
- Supports you from foundation to finish
I’d love to help you through the process.
Explore HART Realty Team
or DM @AshleyHartRealtor to get started with confidence.
