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New Home Construction: Everything You Need To Know About Financing, Planning, & Building Your Dream Home

Home Construction Loans: Everything You Need to Know About Financing, Planning, & Building Your Dream Home

In 2020, the Northern Virginia/Washington area saw a 5% growth rate in new single-family homes, reports The Washington Post, more than the 3% predicted nationwide by the home-building industry. There are a variety of reasons for the unexpected increase in new home construction. For one thing, historically low-interest rates prompted more people to buy houses. Then, increased demand met a low inventory and seller’s market. Finally, the pandemic changed how we live, driving home buyers to seek more space both inside and outside of the home.

Whatever reason(s) you have for wanting to build your next home, The Fauquier Bank can help with convenient and flexible financing. Our local mortgage lenders offer land and home construction loans in Northern Virginia. In this guide, we’ll explain everything you need to know to get from submitting your loan application to stepping through the front door of your brand new home.

1.  Review Your Financing Options

Unless you plan to pay all cash for the land lot to build on and the cost of construction, you’ll need financing. Here are your options:

  • Land and lot loans: The first step toward building your new home is purchasing the land or lot it will sit on. Land financing can stand alone or be paired with the cost of construction in one overall loan. Terms and down payment will depend on your credit profile and financial situation, as well as the condition of the land. Generally, raw (that is completely untouched) land is the hardest to obtain financing for and improved land is easier to finance because some work has already been done to make it habitable, such as utility or road access.
  • Construction-only loans: This is a short-term financing option that covers the cost of building your new home after you’ve already purchased land or a lot to build on. You may be able to make interest-only payments until your home is done. Then, you can roll your temporary construction loan into a regular home mortgage loan.
  • Construction-to-permanent: Avoid the hassle and expense of two closings with one loan that covers construction costs and automatically converts to a long-term mortgage when your new home is built.

2.  Plan Your Budget

According to the National Association of Home Builders, $296,652 was the average cost to build a new 2,594 square foot home in 2019. Of course, there are many factors that contribute to the total cost of new home construction, including local labor costs and price fluctuations for materials such as lumber.

Here’s what to consider when planning your budget:

Site Work

  • Permit fees: Check the rules and regulations in your town or county. Here’s Building, Permitting & Inspections information for Fauquier County and the Building Development Division page for Prince William County.
  • Impact fee (may only apply if building in a new development)
  • Water and Sewer Fees Inspections
  • Architecture and Engineering costs


  • Excavation
  • Foundation
  • Concrete
  • Retaining walls
  • Backfill

Framing (including the roof)

  • Trusses
  • Sheathing
  • General Metal and Steel

New windows, fresh insulation, and modern appliances tend to make new home constructions more energy-efficient overall.

Exterior Finishes

  • Exterior wall finish
  • Roofing
  • Windows and doors (including garage door)

Major Systems

  • Plumbing
  • Electrical
  • HVAC

Interior Finishes

Prices in this category can vary widely depending on the type and quality of finishes chosen.

  • Insulation
  • Drywall
  • Interior trims, doors, and mirrors
  • Painting
  • Lighting
  • Cabinets and countertops
  • Appliances
  • Flooring
  • Plumbing Fixtures
  • Fireplace and etc.

Finishing Touches

  • Landscaping
  • Outdoor structures
  • Driveway
  • Clean up

Your contractor or builder should provide you with an estimate of total costs before you sign a contract. If the price is higher than you wanted, ask if there are places where costs can be trimmed, such as finishes, not putting in a patio, etc.

3.  Choose Your Lot

Whether you are purchasing a lot in a planned development or a separate parcel of land to build on, it’s important to work with a real estate agent who has specific experience with land sales. That will give you the most help with getting a fair price, researching local zoning codes in advance, and avoiding unpleasant surprises later.

When looking for a lot to build your new home on, consider the slope of the lot, the shape of the lot, traffic patterns, and proximity to other homes or structures.

4.  Pick a House Plan

This is perhaps the most important decision you’ll make during the new home construction process. The right house plan should meet not only your current living needs but future ones as well. For example, do you need an in-law suite? A home office? And so on.

How much do you want to customize?

The first question to ask is whether you want to choose a pre-existing plan or go all-in on creating a unique layout for your needs and preferences. There are generally three different levels of home customization:

  • Tract home: Choose from the builders’ set of floor plans. With this option, there is little-to-no room for customization. However, it’s usually the most affordable option.
  • Speculative (aka Spec): Similar to tract homes, but with some customization available if you purchase early in the building process. With a spec home, the builder chooses the floor plan, but early buyers can select finishes such as paint color, cabinetry hardware, and more.
  • Custom Home: This option comes with the most control over customization. You can choose your own land/lot, floor plan, amenities, etc. Just keep in mind that this can get expensive fast.

What do you want and need from your floor plan and home design?

Whether choosing from pre-existing floor plans or designing your own, get clear on what you absolutely have to have in your new house and what could wait—or be scrapped—in case you need to lower the total cost.

  • Number of bedrooms and bathrooms: Both for the current number of people in your household and any additional family members you plan to add. Do you need a home office space and/or a dedicated guest room? How many of those bathrooms should be a half bath or powder room?
  • Number of floors: Consider mobility issues, age, physical limitations, holidays and entertaining, and the needs of those visiting as well as living in the house. One compromise with a multi-level house is to put the primary bedroom on the first floor.
  • Outdoor space: Do you want a bigger or smaller yard? Grass or an alternative such as rocks? What kind of landscaping do you have in mind?
  • Open Concept vs. Individual Rooms: While open-concept designs have been in fashion for a while, the pandemic sent homeowners in search of more walls to designate individual rooms for specific purposes such as working or schooling from home.
  • Architectural Style: What do you want the outside of your house to look like? For example, modern, Tudor, cape cod, craftsman, colonial, etc.
  • Interior Design: You’ll choose furnishings later; for now, think about flooring, cabinet, and other finishing choices to create a certain aesthetic such as modern, contemporary, traditional, transitional, boho, minimal, coastal, etc.
  • Resale Value: Consider additional features that will increase the resale value and give added value to the home such as a pool/hot tub, upscale landscaping, solar panels, high-end finishes. On the other hand, you want to avoid upgrades that will make your home too high-priced for the neighborhood.

5.  Get Your Team Together

Seeing the construction of your dream home from idea to finished house requires a team of professionals.

  • Home Builder: In charge of managing the construction process and administrative details such as the budget, zoning laws, and acquiring permits, infrastructure needs, utilities, and sewer.
  • Architect – You’ll usually need architectural plans in order to apply for permits. Discuss these items with your architect: square footage, number of stories, number of bedrooms and bathrooms, layout, functionality.
  • Interior Designer: Instead of choosing every small detail yourself, you may want to hire a professional to put together a cohesive look with flooring, bath tiles, fixtures, paint colors, cabinetry, and other details.

From interior design to plumbing and electric, it’s best to hire professionals for every aspect of the home construction process to make sure the job is done right.

6.  Understand the Home Construction Process

Understanding the process of building a new house from the ground up will help you stay patient when delays or issues inevitably arise.

  1. Land Prep: Clear any trees or other growth as needed to make space for the foundation.
  2. Foundation: Pour the concrete for the foundation and reinforce with steel rods.
  3. Framing: Watch your home’s “bones” take shape with floor joists, subfloors, studs, and roof trusses.
  4. Plumbing, Electric, & HVAC: Get these major systems installed.
  5. Insulation: Varies depending on climate
  6. Drywall: Once the insulation is in, drywall panels can go up and get primed with paint.
  7. Interior Finishes: Now the “fun stuff” goes up.
  8. Exterior Finishes: Driveway, walkways, final grading, and anything else you’ve chosen such as a patio.
  9. Fixture Installation: Light switches, toilets, hot water heater, and more.
  10. Flooring Installation: Hardwood, carpet, and/or tile.
  11. Final Inspection: Conducted by a local official and results in a certificate of occupancy if you pass—the green light to move in.
  12. Final Walkthrough: This is your walkthrough with your builder to identify any items that need to be fixed before the job is truly complete.

FAQs About Construction Loans and New Home Builds

  1. What does a construction loan cover?
    Depending on the terms of your construction loan, it can cover all costs from start to finish, including the land, contractor, building materials, and permits.
  2. What is the typical down payment on a construction loan?
    Generally, you’ll need to put 20%-30% down.
  1. How do payments work on a construction loan?
    You can make interest-only payments on the loan during construction, then convert the principal to a 15 or 30-year mortgage after the house is ready for move-in.
  1. How long does a new home construction take?
    It takes an average of seven months, though that timespan could be slightly shorter or longer depending on the scope of your project.
  1. Is a new construction home a good investment?
    While there are pros and cons to both buying an existing house or building a new one, a new home is generally considered a good investment because it will be maintenance-free for a while and you can simply move in without taking on any projects.

Contact a TFB Mortgage Lender Today!

Have you always wanted to build the home of your dreams from the ground up? New home construction has become increasingly popular in Northern Virginia. Our Northern Virginia mortgage lenders can help you find the best land, construction, and mortgage financing to meet your needs. Learn more about Land and Construction Loans, contact us, or apply online today!