How to Finance Building a House: 14 Financing Tips

Learn effective ways to secure funding for your house construction project. Read on for help to navigate the financial aspects.

Real Estate
October 15, 2023
How to Finance Building a House: 14 Financing Tips

Shows like Extreme Home Makeover and Love It or List It are fan favorites not just because of their charismatic hosts and fabricated tension, but because they allow us to imagine what our own custom homes might look like. Would we have a three-story slide in lieu of stairs or a regulation-size basketball court? Probably not –– but in watching these shows, we’re still transported to a reality where our dream of three bedrooms, three baths, and an office can come true. Fortunately, that reality might not be as distant as it seems. 

Ever wondered, “How much does it cost to build a house”? In 2023, the average cost of a home build was just under $300,000, compared to the average sale price of already-built homes: a whopping $437,000.1 Taking this statistic into consideration, building your dream home starts to seem like less of a reality TV-induced daydream and more of a legitimate possibility. So, how do you go about turning this dream into reality? Read on for budgeting tips and saving strategies–– and discover how to finance building a house. 

Creating a Home Building Budget 

Like any major financial undertaking, financing your custom home build starts with a budget. Before you can embark on the journey of building your dream home, you need to establish a clear understanding of your financial limitations –– and how much you can realistically allocate to this project. Here is how to budget for a house build

#1 Determine Your Total Budget

Your first step in the budgeting process should be to assess your current financial situation. Account for your total income, including from retirement accounts or social security, if applicable, in addition to your complete list of expenses. From here, you can start calculating how much you can comfortably allocate to the home build without risking your financial stability.

As you assemble this budget, be sure to include not only new construction costs but land costs, permitting expenses, and potential contingencies. If you’re not entirely clear on these costs, the next step will help you iron out the finer details. 

#2 Get Quotes from Professional

A key component in accurately accounting for your expenses will be getting hard facts and figures from architects, contractors, real estate professionals, and other relevant experts. These professionals will not only be able to help you accurately estimate land, permitting, and construction costs –– but they’ll also provide valuable insights to help you on your journey and may even remind you of details you missed. 

#3 Account for Additional Costs

As with any budget, additional expenses are bound to pop up. Don't forget to factor in things like legal fees, property taxes, insurance, and even landscaping costs to be sure you have an idea of the full financial picture. When in doubt: err on the worst-case-scenario side, as it’s always better to budget too much than too little. 

#4 Establish Your Priorities

After watching the numerous expenses pile up on your budgeting worksheet, you may find that your budget is more limited than you previously imagined. This doesn’t mean your dream is dead in the water! Rather, it means that you’ll have to prioritize the features and elements that are most important to you. Consider elements of your dream home that are easier to add after the fact, like a swimming pool or a detached garage, and budget for your total necessities instead. You can always revisit those additional elements in a future phase of the building process. 

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#5 Create a Contingency Fund

They say to expect the unexpected, and this is especially true when it comes to the construction process. Big or small, unforeseen issues will likely arise when building your dream home –– and with a contingency fund in place, you can ensure that these expenses don’t stall construction or send the whole project off the rails. Experts say to allocate between 5 and 10 percent of the total budgeted amount to your construction contingency fund.2 You may not need any of it, but setting this money aside will provide some precious peace of mind. 

#6 Review and Adjust as Needed

Your budget is not set in stone, and should evolve as your home build unfolds. Be sure to periodically review and modify your budget and construction financing, as this will help you stay on track and on schedule. 

The above strategies will help you get closer to accomplishing your dream, but crafting a comprehensive budget will take heaps more time, energy, and contemplation. 

Saving and Investment Strategies

With your budget and chosen financing option in place, you can begin your exploration into saving and investment strategies to help fund your dream home build. From conservative to ambitious, these methods will help you get closer to making your dream a reality. 

#7 Set Up Automated Savings

The challenges of saving money are twofold: You’re either constantly thinking about growing your savings account to the point of obsession, or you’re trying to remember to make your monthly contributions –– often in vain. When you set up automatic monthly payment transfers from your checking account to your dedicated dream home build fund, you take some of the stress out of saving. 

#8 Limit Unnecessary Expenses

Making your dream come true will mean sacrificing the occasional luxury. Whether by cutting back on meals out, opting for a staycation rather than a globetrotting trip, or ditching a streaming service or two, work to identify and reduce unnecessary expenses in your daily life. One way to do this is by looking at your credit card statements. By limiting your discretionary spending, you can free up more funds for your dream home project, faster. 

#9 Make Smart Investments

Relying on savings alone, it may take years to finance your new home build. To expedite this process, you may want to consider investing your savings in vehicles that offer higher returns –– like stocks or mutual funds. Of course, investing carries inherent risk, so make time to consult with a financial advisor before deploying your dream home savings.

#10 Work to Increase Your Income

2023 has been deemed the year of the “side hustle,” with at least 50 percent of Americans –– even high earners –– taking on extracurricular gigs for some additional cash.3 If you want to elevate your income without counting on a significant raise, look for opportunities to boost your earning potential through a side job, freelance work, an Etsy craft shop, or other revenue sources. Remember: If it can be done, someone out there is making money off of it. Don’t hesitate to get creative on the quest for your dream home. 

#11 Set Milestones and Monitor Your Progress

Whether you’re focusing solely on growing your savings, turning your hobby into a side hustle, or playing the stock market, you should be monitoring your progress and making adjustments as needed. Before leveraging an investing or saving strategy, establish timelines and milestones to hold yourself accountable. If you reach a mile marker and your progress isn’t what it should be, find a way to get back on track. 

Through diligent saving, moderation, a bit of risk, and a hearty portion of creativity, you can leverage the above strategies to finance your new construction and finance your dreams into reality.

Mortgage and Loan Options

With an understanding of your budget and the investment strategies that will help you accomplish your goal, it’s time to explore your home loan and mortgage options. But compared to buying a home, building a home will require slightly different financing strategies. Consider these common avenues of how to finance a new home build. 

#12 Construction Loans

To finance a residential construction project, you will likely have to take out a construction loan. These high-interest, short-term loans are specifically designed for residential building projects, and can be used to cover the costs of land, materials, labor, and even permitting.4 Some construction loans allow you to convert to a traditional mortgage after the construction phase is complete –– making interest-only payments while construction is underway. Given the complexity of this loan product, it’s best to consult an expert before completing an application. 

#13 Home Equity Loans or Lines of Credit

Existing homeowners with a significant amount of equity in their homes can leverage this equity to finance a home build. Through a home equity loan or home equity line of credit (HELOC), you can take out a conventional loan against your available equity, then apply it toward any purpose you see fit –– including construction costs. Home equity loans and HELOCs can be valuable tools, but they aren’t without their shortcomings. Discover more on HELOCS vs. home equity loans in our guide. 

#14 Personal Loans

Through diligent saving, lifestyle sacrifices, and savvy investing, you may be pretty close to financing your dream home build on your own. But should you encounter unexpected costs or not quite be at your goal, a personal loan can help bridge the gap. These products are available from several different sources, from private lenders to major financial institutions, and often require some form of collateral to secure the loan.5 Given their elevated interest rates compared to a traditional mortgage or an equity loan, personal loans are probably not the best way to finance your construction project. But if you simply need to get across the finish line, a personal loan may be the right fit.  

When exploring how to finance your dream home build, don’t hesitate to enlist a financial expert for guidance. These professionals will be able to help you navigate your various options and avoid a decision that could significantly impact your financial future. 

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Finance Your Dream Home with a Sale-Leaseback

Between paying out of pocket and relying on construction, home equity, or personal loans, clearly there are several ways to finance your dream home build. But saving several hundred thousand dollars is easier said than done (and it isn’t even that easily said!), and taking on six figures worth of debt is not for everyone. Fortunately, if you’ve accrued equity in your home, this may be the key to making your dream a reality. 

Through our sale-leaseback, you can sell your home in exchange for your equity, and then continue to live there as a renter. This allows you to use your hard-earned equity to finance your dream home build, avoiding the interest fees associated with loan products (and the dread of moving, only to move again.) The construction process can be arduous and uncertain, and having a comfortable, familiar space to call yours can help the time fly by. Plus, knowing that your investment in your home has paid off can be an incredibly rewarding experience –– second only to turning the key on your completed dream home.  

Want to learn more about Truehold’s sale-leaseback? Complete our online contact form to receive a cash offer on your home from a Truehold advisor within 48 hours. 


1. Rocket Mortgage. How Much Does It Cost to Build a House? 

2. Buildertrend. Contingencies in residential construction: What builders need to know.

3. Yahoo! Finance. Side Gigs 2023: 50% of Americans Have a Side Hustle –– Even If They Earn $100K.

4. Bankrate. What are construction loans, and how do they work? 

5. Investopedia. Personal Loan: Definition, Types, and How to Get One. 

Nicolas Cepeda headshot
Written by
Nicolas Cepeda
Financial Analyst at Truehold - A Specialist in Real Estate Finance
Nicolas Cepeda specializes in financial analysis and strategic portfolio management, with a keen focus on innovative residential real estate solutions. He leverages this expertise to cover pertinent topics in the real estate and financial sectors.
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Truehold's blog is committed to delivering timely and pertinent insights in real estate and finance, purely for educational and informational purposes. Crafted by experts, our content is thoroughly reviewed to guarantee its accuracy and dependability. Although designed to enlighten and engage, our articles are not intended as financial advice and should not be the sole basis for financial decisions. Our stringent editorial practices ensure the integrity of our content, empowering our readers with valuable knowledge.

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