If you're thinking about building a custom home on a wooded lot in Michigan, you've probably already done some research on floor plans, builders, and neighborhoods. But there's one question that comes up in almost every conversation I have with buyers at Oaks of Tyrone: how do you actually finance a custom home when there's no house to appraise yet?
It's a fair question. Financing new construction is different from buying an existing home, and the process can feel unfamiliar even for buyers who have owned multiple homes. The good news is that the structure is straightforward once you understand the pieces, and the right builder and lender make the process far simpler than most buyers expect.
What is a construction loan and how does it work?
A construction loan is a short-term, interest-only loan that pays for the cost of building your home in stages. Unlike a standard mortgage where you receive the full loan amount at closing, construction loans release funds in draws as the builder completes each phase of construction — foundation, framing, rough-in, drywall, and final finish.
Here's what that looks like in practice. You and your builder agree on a total construction cost. The lender approves a loan for that amount and sets a draw schedule aligned with the project milestones. The builder submits invoices as each milestone is reached, the lender inspects the work, and funds are released. During construction, you pay interest only on the amount that has been drawn so far, not the full loan balance.
Once construction is complete, the loan converts to a standard mortgage — typically a 30-year fixed-rate loan — through a process called a "construction-to-permanent" loan. This means you only go through one closing, one set of closing costs, and one application process.
Two types of construction loans: one-time close vs. two-time close
Most buyers at Oaks of Tyrone use a construction-to-permanent loan, also called a "one-time close" loan. The entire process — from groundbreaking to move-in — is covered under a single loan that automatically converts to a permanent mortgage when the home is finished. You pay one set of closing costs, and your interest rate is locked in from the start.
The alternative is a two-time close loan, where you take out a separate construction loan and then apply for a permanent mortgage after the home is built. This approach gives you flexibility to shop for a permanent mortgage rate after construction, but it also means two closings, two sets of fees, and the risk that rates could rise during the build. For most buyers, the one-time close is the simpler and more cost-effective option.
What about the land? Does the lot need to be owned separately?
This is where Oaks of Tyrone simplifies things significantly. Because the lot is included in the home package price, there is no separate land purchase or land loan to arrange. The lot is wrapped into the total construction cost from day one, and the construction-to-permanent loan covers the entire package — home plus land.
If you're building on a lot you already own, or purchasing a lot separately from a custom builder, you would typically need to pay for the land upfront or take out a separate land loan, then finance the construction on top of that. The all-in-one package at Oaks of Tyrone avoids this complexity entirely, which is one of the reasons buyers find the process so straightforward.
What do lenders look for when approving a construction loan?
Construction loans are considered slightly higher risk than standard mortgages because there is no completed house serving as collateral during the build. As a result, lenders typically require:
- A higher credit score. Most lenders look for a minimum of 680, though 720 or above will get you the best rates.
- A larger down payment. Expect 10% to 20% down, depending on the loan program and the lender.
- A vetted builder. Lenders will evaluate the builder's license, insurance, track record, and financial stability. Big Sky Development, with more than 30 years of continuous construction and over 20 completed communities, meets this standard easily.
- A signed construction contract. The plans, specifications, and cost breakdown must be finalized before the lender can underwrite the loan.
- A realistic budget. The lender will want to see that the total project cost, including contingency reserves, is within the appraised value of the completed home.
Pro tip from Rob: Big Sky Development works with experienced local lenders who specialize in construction-to-permanent loans for custom homes in Livingston County and Southeast Michigan. They know the market, the builder, and the appraisal process for wooded acreage communities. If you're not sure where to start with financing, we can connect you with lenders who already understand the process.
How does site preparation affect the budget and timeline?
Building on a wooded lot introduces a few site-specific considerations that can affect both the construction budget and the loan draw schedule. At Oaks of Tyrone, Big Sky Development handles site preparation as part of the package, which means the cost of tree preservation, grading, driveway installation, and utility connections are built into the total price rather than treated as separate surprises.
The community also features a shared septic system with pre-treatment, approved by the Tyrone Township Board of Trustees. This eliminates the need for individual perc testing and septic system installation on each lot — a process that can take weeks and cost tens of thousands of dollars on a raw wooded parcel. Instead, each home connects to the community system, which simplifies the site work and keeps the timeline predictable.
If you're building on your own wooded lot elsewhere in Livingston County, be sure to budget for site work separately: perc testing, septic design and installation, well drilling, driveway construction, tree removal or preservation, grading, and utility runs from the road to the house. These costs can add $30,000 to $80,000 or more depending on the parcel and the scope of work.
What is the typical timeline from loan approval to move-in?
For a custom home at Oaks of Tyrone, the typical timeline from contract to move-in is 8 to 12 months. Here's how the financing stages line up with the construction schedule:
Month 1-2: Pre-construction
You select your floor plan, customize the finishes, finalize the contract with Big Sky Development, and submit your construction loan application. The lender orders an appraisal based on the plans and specifications. Once approved, you close on the construction-to-permanent loan and the first draw funds are available.
Month 3-5: Foundation and framing
Site preparation, foundation pouring, and framing are the first major draws. The lender inspects the work at each milestone before releasing funds. This is the phase where you'll see the most dramatic progress — from a cleared lot to a fully framed structure.
Month 6-9: Rough-in and drywall
Electrical, plumbing, HVAC, and insulation are installed, followed by drywall. This phase typically involves the highest concentration of draws as the mechanical systems and interior finishes come together. The lender continues to inspect and release funds on schedule.
Month 10-12: Final finishes and closing
Flooring, cabinetry, countertops, fixtures, and paint are completed. The final draw covers the remaining work, and the lender does a final inspection. Once the certificate of occupancy is issued, the construction loan converts to your permanent mortgage. You move in with a single loan, a single monthly payment, and no second closing.
Frequently asked questions about financing custom homes on wooded lots in Michigan
Can I use a VA or FHA loan to build a custom home on a wooded lot?
VA and FHA construction-to-permanent loans are available, but they come with stricter requirements for builder qualifications, appraisal standards, and loan limits. Most buyers at Oaks of Tyrone use conventional construction-to-permanent loans, which offer the most flexibility. Talk to a lender who specializes in new construction to explore all your options.
How much do I need for a down payment on a custom home in Michigan?
For a conventional construction-to-permanent loan, most lenders require 10% to 20% down. Some programs allow as little as 5% down, but these typically require mortgage insurance. At Oaks of Tyrone, with packages from $629,900, a 10% down payment would be approximately $60,000 to $65,000.
What if construction costs more than expected? Is there a contingency?
Most lenders require a contingency reserve of 5% to 10% of the construction budget to cover unexpected costs. With Big Sky Development's fixed-price contract and a detailed cost breakdown from the start, surprises are minimized. The in-house design team also helps you make selections early so the budget is locked in before construction begins.
Do I need to own the lot before applying for a construction loan?
At Oaks of Tyrone, no. The lot is included in the total home package price, so the construction-to-permanent loan covers the land and the home together. If you're building on a lot you already own, the equity in the land can serve as part of your down payment.
What happens to my interest rate during construction?
With a one-time close construction-to-permanent loan, your interest rate is locked at the initial closing and stays the same through construction and into the permanent mortgage. This protects you from rate increases during the build, which can take 8 to 12 months.
Can I make changes to the floor plan after the loan is approved?
Changes that affect the construction budget may require lender approval, especially if they increase the total cost. Big Sky Development's in-house design team works with you to finalize all selections before the loan closes, so the plans and budget are locked in from the start. Minor changes during construction can usually be handled as long as they stay within the approved budget.
Ready to explore your financing options?
Whether you're pre-approved and ready to build, or just starting to explore what a custom home on a wooded lot might cost, Rob Moen and the Big Sky Development team can walk you through the numbers. We work with experienced local lenders who know the custom home financing process in Livingston County and can help you understand your options before you make any commitments. Schedule a private tour of the wooded homesites at Oaks of Tyrone, and we'll answer your questions about financing, floor plans, and the building process in one visit.