Construction Loans in Milwaukee & Waukesha, Wisconsin
How to Build or Buy a New Construction Home the Smart Way
Building a home instead of buying an existing one is becoming more popular in Milwaukee and Waukesha, especially as inventory stays tight and buyers want more control over layout, finishes, and long-term value.
But construction loans are very different from standard mortgages - and choosing the wrong lender or structure can cost you time, money, and a lot of stress.
This guide breaks down how construction loans work in Southeast Wisconsin, what your options are, and how to decide if building is the right move for you.
1. What Is a Construction Loan?
A construction loan is a mortgage designed to finance the building of a new home, rather than purchasing an existing one.
Instead of receiving all the funds at once, money is released in draws as construction progresses - foundation, framing, drywall, etc.
Once construction is complete, the loan either:
- Converts into a standard mortgage, or
- Is replaced with a separate permanent loan
How this is handled matters a lot (more on that below).
2. One-Time Close vs Two-Time Close Construction Loans
This is one of the most important decisions you'll make.
One-Time Close Construction Loan (Most Popular)
- One loan
- One closing
- One set of closing costs
- Rate locked upfront
- Automatically converts to a permanent mortgage when the home is finished
This option is far simpler and more predictable for most buyers.
Two-Time Close Construction Loan
- One loan for construction
- Second loan after completion
- Two closings
- Two sets of closing costs
- Interest rate not guaranteed for the permanent loan
This option can work, but it introduces more risk and uncertainty.
👉 Most buyers in Milwaukee and Waukesha prefer one-time close construction loans for simplicity and cost savings.
3. Construction Loan Options: FHA, VA, and Conventional
Construction loans are available with multiple loan types, depending on your eligibility.
Conventional Construction Loans
- Great for buyers with strong credit
- Flexible loan amounts
- Often used for higher-end or custom builds
- PMI may apply with low down payment but can be removed later
FHA Construction Loans
- Lower credit score flexibility
- 3.5% down payment
- Mortgage insurance required
- Popular for first-time or moderate-income buyers
VA Construction Loans
- Available to eligible veterans
- Zero down payment
- No monthly mortgage insurance
- Extremely powerful option when structured correctly
👉 The right option depends on credit, income, down payment, and long-term goals.
4. Down Payment Requirements for Construction Loans
Down payments vary by loan type:
- Conventional: Often 5% - 20% depending on credit and builder
- FHA: 3.5% down
- VA: 0% down for eligible veterans
Land equity may count toward the down payment if you already own the lot.
5. Choosing the Right Builder Matters
Not all builders are approved for construction lending.
Lenders will review:
- Builder licensing and insurance
- Experience and track record
- Construction contract and budget
- Timeline and draw schedule
In Milwaukee and Waukesha, working with a builder familiar with construction lending helps avoid delays and surprises.
6. How Draws Work During Construction
Instead of paying a full mortgage right away, you'll typically:
- Pay interest only on funds that have been drawn
- Receive funds in stages as work is completed
- Have inspections at each draw phase
This keeps payments lower during construction and ensures the project stays on track.
7. Credit, Income, and Qualification Requirements
Construction loans are underwritten more carefully than standard mortgages.
Expect lenders to review:
- Credit scores
- Stable income history
- Debt-to-income ratios
- Cash reserves
- Builder documentation
Pre-approval is essential before choosing a lot or builder.
👉 Internal link:
Mortgage Pre-Approval in Wisconsin: From Call to Pre-Approval Letter in 3 Easy Steps
https://adamzmortgageteam.com/mortgage-pre-approval-in-wisconsin-from-call-to-pre-approval-letter-in-3-easy-steps/
8. Construction Loans vs Buying Existing Homes in Milwaukee & Waukesha
Why buyers are choosing to build:
- Limited existing inventory
- Ability to customize layouts and finishes
- Lower maintenance costs
- Energy efficiency
- Long-term value in growing suburbs
Areas around Waukesha County continue to see strong new construction activity, while Milwaukee buyers often build in surrounding suburbs for space and lot availability.
9. Common Construction Loan Mistakes to Avoid
- Choosing a lender without construction experience
- Using a builder not approved for lending
- Not understanding draw schedules
- Assuming rates can be locked later
- Underestimating timelines or costs
Construction loans require planning and structure, but done right, they're incredibly effective.
10. Is a Construction Loan Right for You?
A construction loan may be a great fit if:
- You want a custom or semi-custom home
- You can't find what you want in the current market
- You want predictable long-term ownership costs
- You value flexibility and control
It's not for everyone - but for the right buyer, it's a powerful option.
Final Thoughts
Construction loans in Milwaukee and Waukesha don't have to be complicated.
With the right loan structure, builder, and guidance, building a home can be just as smooth as buying one - sometimes even smoother.
Contact
Adam Zeman - Union Home Mortgage
Mortgage Loan Originator | NMLS #870441
📞 414-975-2654
✉️ azeman@uhm.com
🌐 https://adamzmortgageteam.com