Financing Options for Building a Home in Massachusetts
Building a custom home is exciting — but it’s also one of the biggest financial commitments most people ever make. Few homeowners can pay the entire cost upfront, which is why understanding construction financing is an important part of the process.
In Massachusetts, there are several ways to finance a new build. Here’s what you should know before you break ground.
Construction Loans
Most homeowners use a construction loan to fund their new build. Unlike a traditional mortgage that pays out in one lump sum, construction loans are structured to release funds in stages, called “draws.”
How it works: As the builder completes each phase (foundation, framing, finishes), the bank inspects the progress and releases funds for that stage.
Interest payments: During construction, you typically pay only the interest on what has been drawn so far.
Conversion: When the home is complete, the loan often converts into a traditional mortgage with principal and interest payments.
This setup helps protect the bank, the builder, and you as the homeowner.
One-Time Close vs. Two-Time Close Loans
There are two common structures for construction financing:
One-time close: The construction loan automatically converts to a mortgage when the home is complete. You only close once, saving on fees.
Two-time close: You close on the construction loan first, then refinance into a mortgage later. This gives more flexibility but may mean two sets of closing costs.
Using Equity or Land Value
If you already own the land where you plan to build, the bank may count the land’s value as your down payment or part of your equity. This can reduce the amount of cash you need upfront.
Home Equity Loans or Lines of Credit
Some homeowners use a home equity loan or HELOC from an existing property to fund part of the new construction. This can be useful if you’re building a second home or planning to sell your current house after the new one is complete.
State and Local Programs
While most financing is through private lenders, Massachusetts also offers programs that can help, especially for first-time buyers or in special areas. These include low-interest loan programs through the MassHousing agency. Each town may also have unique grant or incentive programs — it’s always worth checking with your local planning office.
Budgeting Tips for Construction Financing
Plan for contingencies. Most banks require a contingency fund (often 5–10%) in case costs run over.
Get pre-approved early. Knowing your financing capacity helps guide design decisions.
Work with an experienced builder. Lenders are more comfortable financing projects led by established contractors with a track record.
Understand the timeline. Banks release funds as work is completed, so clear scheduling and communication are key.
Final Thoughts
Financing a custom home in Massachusetts doesn’t have to be complicated. Whether through a traditional construction loan, equity from land, or state-backed programs, there are multiple paths to get your dream home built. The right lender, combined with the right builder, makes the process smoother and less stressful.
Your vision deserves a solid financial foundation — and the first step is understanding your options.
