New Construction Loans in Utah

How New Construction Financing Works in Utah

Buying a new construction home is not the same as buying a resale property, and the financing process reflects those differences. Whether you are purchasing a move-in-ready spec home in a master-planned community or building a custom home from the ground up, understanding how new construction financing works will help you avoid surprises, protect your rate, and negotiate from a position of strength.

The process begins with pre-approval. Before you visit a single model home or builder sales office, you should have a pre-approval letter in hand from a lender you trust. Builders take pre-approved buyers more seriously, and many will not allow you to write a purchase agreement without one. A strong pre-approval also tells you exactly what you can afford, which is critical when design center upgrades and lot premiums can add tens of thousands of dollars to the base price.

Once you select a home and sign a purchase agreement with the builder, the timeline depends on what you are buying. A completed spec home may close in 30 to 45 days — similar to a resale transaction. An inventory home that is partially built might close in 60 to 120 days. A home being built from the ground up could take 6 to 12 months or longer. Each of these timelines creates different financing considerations, particularly around rate locks and appraisals.

The appraisal process for new construction is also different. Rather than comparing the home to recent sales of similar existing properties, the appraiser evaluates the home based on plans, specifications, and comparable new construction sales in the area. For homes still under construction, the lender typically orders a final inspection once the home is complete and has received its certificate of occupancy before the loan can close. This means the appraisal process may happen in two stages — an initial review based on plans and a final inspection of the finished product.

New construction purchases also involve earnest money deposits, which tend to be larger than those on resale homes. Builders often require a non-refundable deposit at contract signing and additional payments at various milestones. Understanding what is refundable, under what conditions, and when additional deposits are due should be part of your purchase negotiation — not an afterthought.

Types of New Construction

Not all new construction is the same, and the type of build you pursue affects your financing options, timeline, and negotiating leverage. In Utah’s active new construction market, you will encounter three main categories of new builds, each with its own characteristics.

Spec and inventory homes are properties that builders construct without a specific buyer under contract. A spec home (short for speculative) is built to the builder’s standard floor plan and finish selections. An inventory home is a spec home that is complete or near completion and available for immediate or near-term purchase. These homes offer the fastest path to closing because the construction is already done or nearly done. Financing works essentially like a resale purchase — you get pre-approved, make an offer, and close once the home is finished. Builders are often motivated to sell inventory homes quickly to free up capital, which can create opportunities for negotiation.

Semi-custom homes are built in a builder’s community using one of their established floor plans, but the buyer selects finishes, upgrades, and sometimes structural options (such as adding a bedroom or extending a great room) through the builder’s design center. This is the most common new construction purchase in Utah. The buyer typically signs a purchase agreement before construction begins, selects finishes during the design center appointment, and then waits for the home to be built. Build times vary from 4 to 10 months depending on the builder, community, and time of year. Financing requires careful attention to rate lock timing since the closing date is months away and subject to construction delays.

Custom builds involve purchasing land (or building on land you already own) and hiring a custom builder to construct a home designed specifically for you. This offers the most flexibility in design but also the most complex financing. Custom builds typically require a construction loan or a construction-to-permanent loan, which disburses funds in stages as work progresses. The borrower may need to own the land outright or include the land purchase in the construction loan. Custom builds take the longest — often 9 to 18 months or more — and carry the most financial risk if not managed carefully.

Understanding which type of new construction you are pursuing is the first step in determining the right financing strategy. A spec home buyer and a custom build buyer have very different needs, and the loan products, rate lock strategies, and costs differ accordingly.

Extended Rate Locks and Why They Matter

In a resale home purchase, you typically lock your interest rate 30 to 60 days before closing — plenty of time for a standard transaction. But new construction timelines are measured in months, not weeks. If your home will not be finished for six months or longer, a standard rate lock will expire long before you reach the closing table. This is where extended rate locks become essential.

An extended rate lock allows you to secure your interest rate for a longer period, typically ranging from 90 days to 12 months. The rate is locked at the time of agreement, protecting you from market increases during the construction period. If rates rise while your home is being built, you keep the lower locked rate. This protection can save thousands of dollars over the life of the loan — even a quarter-point increase on a $400,000 mortgage adds roughly $60 per month to the payment.

However, extended rate locks are not free. Lenders price the risk of holding a rate for an extended period, and that cost is passed to the borrower in one of several ways. Some lenders charge an upfront fee, often expressed as a percentage of the loan amount. Others build the cost into the rate itself, offering a slightly higher rate than what is available for a standard 30-day lock. Some programs offer a “float-down” feature that allows you to take advantage of rate decreases during the lock period, though this feature typically adds cost.

Not all lenders offer extended rate locks, and those that do may have different terms, costs, and float-down provisions. This is one of the most important questions to ask any lender when financing new construction. A lender who does not offer extended locks — or who offers them only at prohibitive cost — may not be the right fit for a new construction purchase, regardless of how competitive their standard rate quotes appear.

The timing of your rate lock decision also matters. Locking too early means paying for more time than you need. Locking too late exposes you to rate increases. The optimal strategy depends on your build timeline, your risk tolerance, and current market conditions. A loan officer experienced with new construction can help you evaluate the cost-benefit of locking at different points in your build timeline.

Your Own Lender vs. Builder’s Lender

When you purchase a new construction home in Utah, the builder’s sales team will almost certainly recommend that you work with an affiliated lender — sometimes called the builder’s “in-house” or “recommended” lender. Builders have business relationships with these lenders, and they may offer incentives to encourage you to use them. But you are never required to use a builder’s affiliated lender, and understanding the dynamics at play will help you make the decision that serves your interests.

Why builders recommend their lender: Builders work with affiliated lenders because the relationship benefits both parties. The builder gets a financing partner who understands their contracts, timelines, and processes. The lender gets a steady stream of referrals. In many cases, the builder and lender have a financial relationship — the builder may own a stake in the mortgage company, or the lender may pay marketing fees. None of this is inherently wrong, and it is disclosed on your paperwork. But it does mean the recommendation is a business arrangement, not a disinterested endorsement of the lender’s competitiveness.

When the builder’s lender makes sense: If the builder offers substantial incentives contingent on using their affiliated lender — and those incentives exceed any cost differences between the affiliated lender and your preferred lender — it may make financial sense to accept. The key is to quantify the incentive value and compare it against the total cost of the loan, including rate, fees, and any extended rate lock costs. Sometimes the math favors the builder’s lender. Sometimes it does not.

When your own lender makes sense: Having your own lender means you have an advocate whose only obligation is to you, not to the builder. Your lender can review the purchase agreement from your perspective, flag terms that may not be in your interest, and ensure you are getting competitive pricing without the influence of the builder relationship. Your lender may also offer better extended rate lock options, lower fees, or access to loan programs the builder’s lender does not carry.

The comparison approach: The most informed buyers do both. They get a complete loan estimate from the builder’s affiliated lender and a complete loan estimate from their own lender. They compare interest rates, closing costs, rate lock terms, and any incentives offered. Then they make a decision based on total cost rather than sales pressure. If a builder tells you their incentive is only available if you use their lender, ask for the incentive in writing so you can make an accurate comparison. And remember — under federal law (RESPA), a builder cannot require you to use a specific lender as a condition of the sale.

Builder Incentives Explained

Builder incentives are one of the most discussed — and most misunderstood — aspects of buying new construction. Builders use incentives to attract buyers, move inventory, and manage their sales pipeline. Understanding what incentives are, how they work, and what to watch for will help you evaluate whether an incentive offer genuinely benefits you or simply redirects costs.

What incentives typically look like: Builder incentives can take many forms. Common examples include contributions toward the buyer’s closing costs, credits at the design center for upgrades like premium flooring or countertops, interest rate buydowns that reduce the buyer’s rate for a period or permanently, lot premium waivers, or included upgrades that would otherwise be priced separately. Some builders offer incentive packages that combine several of these elements.

Why builders offer incentives: Incentives are a tool for managing inventory and sales pace. A builder sitting on completed homes generates carrying costs — interest on construction loans, property taxes, insurance, and maintenance — every month those homes remain unsold. Offering incentives to move that inventory often costs the builder less than holding it. Similarly, builders may offer incentives during slower sales periods to maintain a consistent construction pipeline. Incentive programs are not charity; they are a business decision, and they fluctuate based on market conditions, inventory levels, and the builder’s financial targets.

How to evaluate an incentive: The value of an incentive depends on what it actually saves you in total cost. A closing cost contribution has a clear dollar value. A design center credit is only valuable if you would have purchased those upgrades anyway — if the credit applies to upgrades you do not want or need, its real value to you is less than the stated amount. A rate buydown can save significant money over the life of the loan, but you need to calculate the total savings versus the cost the builder is actually absorbing. Ask your loan officer to help you quantify the value of any incentive package so you can compare it against your alternatives.

Incentives tied to lender selection: Many builders condition their incentive packages on the buyer using the builder’s affiliated lender. This is legal, provided it is properly disclosed. But it creates a comparison challenge: you need to weigh the incentive value against the potential cost differences between the builder’s lender and your own. An incentive that saves you a few thousand dollars on closing costs but costs you more in rate, fees, or unfavorable lock terms may not be the bargain it appears. Always compare the full cost of both options.

Incentives can change: Builder incentive programs are not permanent and can change at any time. What is offered today may not be available next month, and what is offered next month may be more generous than today. Incentives are also sometimes negotiable, particularly on inventory homes that have been on the market for a while. Your real estate agent and loan officer can help you understand what is typical for a given builder and community and where there may be room for negotiation.

FHA, VA & Conventional Options for New Construction

New construction homes in Utah can be financed using the same core loan programs available for resale properties: FHA, VA, and conventional. Each program has specific requirements and advantages in the context of new construction, and the right choice depends on your financial situation, military service status, and the type of build you are pursuing.

FHA loans for new construction: FHA loans are popular with first-time buyers because they allow credit scores as low as 580 with a 3.5% down payment (or 500 with 10% down). For new construction, the home must meet FHA minimum property standards, which new builds generally satisfy since they are built to current code. FHA requires that the builder be registered with the FHA and that the property receive an FHA appraisal. FHA also offers a one-time close construction loan (FHA 203(b) or the construction-to-permanent variant) for custom builds, though not all lenders offer this product. FHA loans carry mortgage insurance premiums (MIP) for the life of the loan, which is a cost to factor into your comparison.

VA loans for new construction: Eligible veterans and active-duty service members can use VA loans to purchase new construction homes with zero down payment and no private mortgage insurance. VA loans offer some of the most favorable terms available, including competitive interest rates and no PMI requirement regardless of down payment. For new construction, the home must meet VA minimum property requirements (MPRs) and receive a VA appraisal. VA also allows construction-to-permanent financing, though the availability of VA construction loans varies by lender. If you are a veteran purchasing new construction, confirming that your lender handles VA new construction transactions is essential.

Conventional loans for new construction: Conventional loans offer the broadest flexibility for new construction purchases. Down payments start as low as 3% for first-time buyers (through programs like HomeReady and Home Possible) and 5% for repeat buyers, with private mortgage insurance (PMI) required below 20% down. Conventional loans typically have the most straightforward process for new construction — fewer property-specific requirements than FHA or VA, and wider availability of extended rate lock products. For buyers with strong credit and sufficient down payment, conventional financing often provides the lowest total cost.

Down payment assistance: Utah Housing Corporation (UHC) down payment assistance programs can be used with FHA and conventional new construction purchases, potentially reducing the buyer’s cash to close. Some builders will also allow their closing cost incentives to be layered with DPA programs, though this varies by builder and program. Discuss DPA eligibility with your loan officer early in the process to understand how it interacts with the builder’s contract and any incentives offered.

Major Utah Builder Markets

New construction activity in Utah is concentrated in several high-growth regions, each with its own market dynamics, builder presence, and community character. Understanding these markets helps you target your search and anticipate the financing considerations specific to each area.

Beyond these four primary markets, new construction occurs in Weber County (Ogden, Roy, West Haven), Cache County (Logan, North Logan), and Tooele County (Tooele, Grantsville), each with smaller but active builder communities. The financing fundamentals are the same regardless of location, but familiarity with the local builders and their processes makes a meaningful difference in how smoothly the transaction goes.

Construction-to-Permanent Loans

If you are building a custom home in Utah — or purchasing a semi-custom home that requires construction financing — a construction-to-permanent (CTP) loan may be the right financing structure. This loan type covers both the construction phase and the long-term mortgage in a single product, simplifying the process and reducing costs compared to taking out two separate loans.

How a CTP loan works: A construction-to-permanent loan closes once, at the beginning of the project. During the construction phase, the lender disburses funds in installments called “draws.” Each draw corresponds to a construction milestone — foundation completion, framing, rough-in of mechanical systems, and so on. The lender typically sends an inspector to verify that the work has been completed before releasing each draw. During the construction phase, you generally make interest-only payments on the amount that has been disbursed, rather than on the full loan amount.

Once construction is complete and the home receives its certificate of occupancy, the loan automatically converts (or “modifies”) into a standard permanent mortgage. At that point, you begin making regular principal and interest payments on the full loan balance. The permanent loan terms — rate, term, and payment schedule — are established at the original closing, so there are no surprises when the conversion happens.

Advantages of a single close: The primary advantage of a CTP loan is that you close only once, which means one set of closing costs, one appraisal, and one underwriting process. The alternative — a standalone construction loan followed by a separate permanent mortgage — requires two closings, two sets of fees, and the risk of not qualifying for the permanent loan when construction is finished (due to changes in your financial situation or lending standards). A single-close CTP loan eliminates that refinancing risk.

What you need for a CTP loan: Construction-to-permanent loans have specific requirements beyond a standard mortgage. You will typically need detailed construction plans and specifications, a fixed-price construction contract with a licensed builder, proof that the builder carries appropriate insurance and licensing, the lot or land (either already owned or being purchased as part of the loan), and a timeline for construction milestones. The lender will appraise the property based on the plans and specifications — estimating the home’s value upon completion — and will monitor construction progress throughout the build.

CTP availability: Not all lenders offer construction-to-permanent loans, and those that do may have different requirements, draw schedules, and rate structures. Some lenders specialize in CTP loans and have established processes for managing the construction phase. Others offer the product but handle relatively few of these transactions. If you are planning a custom build, working with a lender who has genuine experience managing construction loans — not just a lender who lists the product on their website — will make a significant difference in how smoothly the process goes.

Working With Felix on New Construction

New construction financing adds layers of complexity that do not exist in a standard home purchase. Extended rate locks, builder contracts, design center budgets, construction timelines, appraisals on unfinished homes, and the interplay between builder incentives and loan costs all require a loan officer who has navigated these transactions before and can guide you through each decision point.

Felix Vivanco (NMLS #2002977) is a licensed mortgage loan officer with First Colony Mortgage (NMLS #3112). He works with new construction buyers throughout Utah and provides bilingual service in English and Spanish. Felix understands the builder process from the inside — the contract structures, the incentive negotiations, the extended rate lock strategies, and the closing timelines that make new construction different from resale. Whether you are evaluating a builder’s incentive package, deciding between the builder’s lender and your own, or structuring a construction-to-permanent loan, Felix helps you see the full picture so you can make confident, informed decisions.

New construction is one of the most rewarding ways to buy a home in Utah, but only when the financing is structured correctly. Get started with a no-obligation conversation about your new construction goals, and let Felix help you build the right financing strategy before you walk into the model home.

Frequently Asked Questions