Buying land and building a custom home is an exciting prospect for many people looking to design their perfect living space. However, financing the purchase of vacant land and the construction of a new house requires some strategic planning.

Here are some tips for financing your dream home build:


Save Aggressively for a Down Payment

Lenders typically require a higher down payment for a vacant land loan than they would for a traditional mortgage. Plan to save at least 20-25% of the total costs of the land purchase and construction. This includes the down payments needed for both the land loan and the construction loan. Having a large down payment will result in better loan terms and lower interest rates.

Shop Around for a Land Loan

Research lenders that provide land acquisition loans and compare interest rates and fees. Ask potential lenders if they have experience with land loans and building loans to finance construction. Look for banks that will roll the land loan into the construction loan once you’re ready to start building. This avoids having to requalify and pay fees on two separate loans.

Get Pre-Approved for a Construction Loan

Once you have an accepted offer on the land, get pre-approved for a construction loan. This shows sellers and contractors that you can secure financing for the build. Lenders will want to review house plans and specifications before approving the loan. Expect higher rates and fees than a conventional mortgage since construction loans carry more risk.

Know Your Budget and Build Timeline 

Creating a detailed budget that includes permits, labor, materials, and other hard and soft costs is crucial when applying for a construction loan. The bank will review your budget to ensure you have enough financing. Be realistic about your timeline as loans have a maximum term of 9-12 months. Unused funds may be forfeited if the build goes beyond the agreed timeline.

Consider an Experienced Construction Lender

Research lenders familiar with the construction loan process in your area. They can guide you on standard construction costs per square foot and provide advice on managing loan disbursements. An experienced lender makes the building phase go more smoothly and can offer solutions if unexpected costs arise.

Use Your Permanent Mortgage for the End Loan

Most construction loans require you to close on permanent financing once the home is move-in ready. This involves applying for a traditional mortgage to pay off the construction loan. Using the same lender for both loans can streamline the process. Lock in your rate with the lender before construction starts for seamless financing.


Building your own home is an exciting adventure. Following these tips will ensure you have the financing in place to achieve your dream home. Let me know if you need any other details on how to finance buying land and constructing your custom-built house.

These are just a few of the things to consider as you navigate how to finance buying land and building a house in Missouri. As you make your plan, remember that expert guidance can make a difference. Contact the Merchant Team to ensure your vision is realized without any issues.