New Construction Financing in the Black Hills: How Construction Loans Really Work

Building a new home in the Black Hills is an exciting journey — but financing a new construction home is not the same as buying an existing home.

If you’re considering building in Spearfish, Rapid City, Sturgis, or Deadwood, understanding construction loans and your financing options is the first step toward a smooth build.

In this guide, we’ll break down the most common ways to finance new construction, explain how construction loans work, and share the key things lenders look for — so you can build your dream home without surprises.

👉 Watch the full video breakdown here:
New Construction Financing – How Construction Loans Work

Why New Construction Financing Is Different

When you buy a resale home, you typically get a traditional mortgage and move in.

With new construction, the home doesn’t exist yet — so lenders use a different process to protect both you and the builder. That’s why construction financing is unique.

The most important thing to understand is that construction loans are built around stages of construction, not the final finished product.

Option 1: Construction-to-Permanent Loan (Most Common)

A construction-to-permanent loan is one of the most convenient options for new builds.

How it works:

• You get one loan that funds the construction

• The loan converts into a traditional mortgage once the build is complete

• One closing, one set of fees

• You lock in your rate at the start

• Typically 12 months to build

• Some lenders allow you to relock the rate once if rates drop

Why it’s popular:

It simplifies the process and avoids the hassle of two separate loans.

Option 2: Stand-Alone Construction Loan

A stand-alone construction loan is a separate loan for the build.

How it works:

• You take out a construction loan to build the home

• Once the home is finished, you refinance into a permanent mortgage

Pros & Cons:

• Pros: Flexibility if you don’t want to lock in rates early

• Cons: Two closings = two sets of fees

Option 3: Builder Financing (Sometimes the Best Option)

Some builders offer financing options directly or through preferred lenders.

Why this can be a strong choice:

• Builders may cover construction interest if the build goes past the scheduled date

• You can stay in your current home while building

• It can feel more like buying a resale home

• Strong motivation for the builder to complete the project on time

We work with several builders in the Black Hills who offer financing — and we often recommend this option for its simplicity and structure.

Option 4: Cash or HELOC

Some buyers use cash reserves or a HELOC (Home Equity Line of Credit) from their current home.

Why this can work:

• Gives you flexibility

• Can speed up the process

• Sometimes reduces financing complexity

Why it may not be practical:

• Not every buyer has the equity or cash reserves

• It may not be the best financial move depending on your situation

How Construction Loans Work (Draws & Interest)

Construction loans typically last between 6–18 months, depending on the build timeline.

The key thing to know:

Funds are released in “draws” as the builder completes milestones like:

• Foundation

• Framing

• Electrical

• Plumbing

• Final inspections

You only pay interest on the funds that have been disbursed — not the full loan amount upfront.

Once construction is complete, the loan either:

• Converts into a permanent mortgage (construction-to-perm)

• Or you refinance into a new mortgage (stand-alone)

What Lenders Look For When Financing New Construction

To approve a construction loan, lenders typically require:

1. Detailed Construction Plans & Budget

They want to see the full build plan, costs, and timeline.

2. A Qualified Builder

Lenders want to know your builder is reputable and approved.

3. Strong Credit, Income & Down Payment

Most custom builds require 20% or more down, though some programs may offer lower down payment options.

New Construction Loans in the Black Hills (Spearfish, Rapid City, Sturgis, Deadwood)

If you’re building in the Black Hills, you’re not just financing a home — you’re financing a lifestyle.

From Spearfish to Rapid City and Sturgis to Deadwood, new construction is booming — and financing is a key step to making it happen.

If you want to build your dream home with confidence, you need a local expert who knows the builders, the lenders, and the process.

Want the Full Breakdown?

If this was helpful, make sure to watch the full video on YouTube for the complete explanation and examples.

🎥 Watch here:
New Construction Financing – How Construction Loans Work

Ready to Build in the Black Hills?

Every build is different, and financing depends on your situation.

If you want a personalized plan and help navigating builders, lenders, and the construction process, reach out to us.

📞 SD: 1-605-600-5757
📧 [email protected]

Jeff Christians
Christians Team Real Estate
Serving Spearfish, Rapid City, Sturgis, Deadwood, Lead, and the surrounding Black Hills