How to Finance a Custom Home in West Michigan

Building your dream home in West Michigan is one of life’s most rewarding journeys, but figuring out how to pay for it can feel like a maze. But here’s the good news: most custom home clients follow one of just a few tried-and-true financing paths. Whether you’re working with equity from a current home, planning to finance the full build, or considering paying cash, you have options, and we’re here to help you navigate them.

R-Value Homes builds high-performance homes in Grand Rapids and beyond with long-term value in mind. That means thoughtful design, efficient systems, and yes, a financing approach that supports your lifestyle now and in the future. Let’s break down your choices and highlight which ones work best for your current situation and long-term success.

Compare Your Financing Options at a Glance

Here’s a quick overview of the three most common ways our clients fund their custom builds to kick things off.

Construction Loans: The Workhorse

When it comes to financing a custom home in West Michigan, construction loans are by far the most common choice, and for good reason. This popular option offers flexibility, security, and aligns beautifully with the custom build process.

What Is a Construction Loan?

A construction loan is a short-term, interest-only loan that covers the cost of building your home. Once construction wraps up, it usually converts into a traditional mortgage (also called a construction-to-permanent loan).

You’re only paying interest on the money that’s actually been disbursed, not the full loan amount. That helps keep payments manageable during the build phase.

How Draw Schedules Work

Funds are released in phases, called draws, which are tied to specific construction milestones (like pouring the foundation or framing). Each draw is verified, often with a site inspection, before funds are disbursed to the builder.

Working with a title agency adds an extra layer of protection for both the homeowner and the builder, ensuring payments align with progress.

Why West Michigan Homeowners Love It

• Keeps your cash available while you build

• Creates transparency with clear budgeting and milestones

• Offers predictable transitions from build to mortgage

• Can be used even if you already own the lot

Spotlight: Lake Michigan Credit Union (LMCU)

While we don’t have a financial partnership with any lender, Lake Michigan Credit Union has consistently made life easier for our clients. They offer:

• A streamlined approval process

• Familiarity with the local building process

• Draw schedules that work for both clients and contractors

• Responsive communication and fewer delays

Pro Tip: If you're building in West Michigan, start the financing conversation early, ideally before breaking ground. Lock in your rate and make sure your construction and mortgage terms are aligned from day one.

Bridge Loans for Custom Homes: Financing Before You Sell Your Current Home

If you’re planning to build a new home while still living in your current one, a bridge loan can help you avoid the disruption of moving twice or rushing to sell.

What Is a Bridge Loan?

A bridge loan is a short-term financing solution that allows you to start building your custom home while you’re still in your existing home. It “bridges” the gap between buying your new home and selling your current one. Once your existing home is sold, the proceeds are used to pay off the bridge loan or reduce the balance on your new mortgage.

When a Bridge Loan Makes Sense

• You have substantial equity in your current home

• You want to avoid renting or moving twice

• You need access to funds before your current home is sold

• You want to stay in your home until your custom build is ready

Pros and Cons of Bridge Financing

Advantages

• Stay in your current home during construction

• Avoid storage and moving costs

• Flexibility to time your home sale for the best outcome

Challenges

• Must qualify while still carrying your existing mortgage

• May involve higher interest rates and fees

• Risk of temporarily owning two properties if your home doesn’t sell quickly

What to Know Before Choosing a Bridge Loan

Not all lenders offer bridge financing, and requirements vary. You’ll typically need strong credit, stable income, and a clear plan for your home sale. Work with a lender who understands custom home timelines to avoid unnecessary pressure or delays.

Paying Cash to Build a Custom Home in West Michigan: Is It a Good Idea?

While it's less common, some homeowners choose to finance their custom home project with cash, either from savings, liquidated investments, or retirement funds. About 10% of our clients go this route.

Advantages of a Cash Build

• No monthly payments or loan interest during construction

• Faster closings and fewer lender-related delays

• Greater flexibility with some builders or subcontractors

• Freedom from mortgage underwriting requirements

Risks of Paying Cash for a Custom Home

Despite its appeal, cash builds come with trade-offs that aren’t always obvious at first.

• Reduced financial flexibility – A large portion of your assets are tied up in a non-liquid investment during the build

• No draw schedule protections – Without a construction loan, you may not benefit from title agency oversight or third-party inspections

• Less cushion for changes or cost overruns – Cash buyers sometimes skip pre-budgeting processes that help prevent financial surprises

• Potential tax or investment implications – Withdrawing from retirement or selling assets to fund a build could come with costs

When Paying Cash Makes Sense

• You have significant, easily accessible assets

• You’re comfortable managing payments and milestones without lender oversight

• You’ve built before and know how to manage construction-related risks

Smart Alternative: Consider a Construction Loan—Even If You Can Pay Cash

Some of our most financially savvy clients choose to take out a construction loan even when they technically don’t need one. Why?

• Keeps cash liquid for other investments or emergencies

• Adds built-in protections (title agency, inspection milestones, controlled disbursements)

• Offers better long-term flexibility if circumstances change mid-build

How to Avoid Financing Pitfalls: Red Flags to Watch for When Choosing a Lender

Choosing the right lender is just as important as choosing the right builder. Some banks and credit unions offer excellent construction financing programs, others... not so much.

Common Financing Red Flags for Custom Home Projects

Rigid Disbursement Policies

Some lenders only release funds after materials are installed, rather than when they are delivered. This creates cash flow problems for builders and can delay your project. In extreme cases, clients may need to pay for materials, then get reimbursed by a future draw.

Lack of Construction Knowledge

If your loan officer passes you off to someone else to close the loan, it may be a sign he/she doesn’t understand the custom home process or how draw schedules and inspections work, which often can lead to frustration, slow approvals, and unnecessary risk. We've also seen problems arise when lenders that typically work with fixed-price contracts are asked to work with cost-plus; and vice versa.

Inflexible Draw Schedules

Avoid lenders that enforce “one-size-fits-all” draw schedules that don’t match your actual build phases. These policies can slow down progress or force builders to front materials and labor. Make sure your lender is ok with the number of draws your builder needs to keep everyone paid.

Delays in Title Work or Inspections

Lenders who don’t work closely with experienced title agencies, inspection partners, or surveyors can cause bottlenecks that affect everyone involved.

Poor Communication During the Build

Your financing partner should be just that, a partner. If they’re hard to reach, slow to respond, or can’t clearly explain your loan terms, that’s a red flag.

What to Look for in a Construction-Friendly Lender

• Experience with custom home builds in West Michigan

• Flexible draw schedules that align with your contractor’s payment structure

• Strong working relationships with local title companies

• Transparent, upfront loan terms and fees

• Responsive, knowledgeable loan officers

Pro Tip: Don’t just compare rates, compare processes. Ask homeowners and builders who they prefer, and why. The best lender for your build is the one who wants to work with your builder, not force you into a cookie-cutter loan. They strive to keep your project moving smoothly, communicate clearly, and help you understand construction financing from the ground up.

Financing Energy-Efficient and High-Performance Homes

High-performance homes, like the ones we build, offer long-term savings through better insulation, tighter envelopes, and high-efficiency systems. But many of those benefits require upfront investment. Good financing helps you capture that value now while spreading out the cost over time.

Can I Finance Energy Upgrades?

Yes, and in many cases, it's smart to roll those costs into your construction loan so you can:

• Lock in better indoor air quality, comfort, and efficiency from day one (think of it like pre-paying your utility bills)

• Qualify for a larger mortgage thanks to lower utility expenses

• Take advantage of green mortgage incentives (ask what's currently available in Michigan)

What Energy Features Are Worth Financing?

• Triple-pane windows and advanced air sealing

• High-efficiency HVAC systems (including heat pumps and ERVs)

• ICF walls

• Solar-ready infrastructure

• All-electric design for net-zero readiness

Frequently Asked Questions About Custom Home Financing

How much down payment do I need for a construction loan?

Most construction loans require 10–20% down, depending on the lender and loan amount. Some allow the value of your land (if owned) to count toward your down payment.

Can I lock in a mortgage rate before construction is complete?

Yes. Some lenders offer extended rate locks for construction-to-permanent loans, but terms vary. Ask your lender early to avoid surprises.

What happens if my home goes over budget during construction?

It’s important to build a contingency fund (often 5–10%) into your loan. If the loan doesn’t cover added costs, you may need to pay out of pocket or apply for a loan modification.

Need real figures to help you plan? Our updated local cost guide is here for you.

Do I need to sell my current home before I start building?

Not always. If you qualify, bridge financing can let you build first and sell later, giving you more flexibility and less disruption.

Can I pay cash for some items and still use a construction loan?

Yes. Many clients pay directly for landscaping, appliances, or upgrades not covered in the contract. Just coordinate with your lender and builder so there are no surprises. The critical requirement nearly all lenders share is: you cannot begin a construction project, then finish with a construction loan! I've only heard nightmares from people that have tried this.

How We Support Your Financing Process

R-Value Homes regularly coordinates with local lenders and title agencies to make sure your construction loan process is seamless. We’ve worked with many local institutions and are happy to provide lender recommendations based on your goals. Whether you’re pre-approved or just starting to explore options, we’ll help you structure your timeline and budget in a way that aligns with your financing plan.

Ready to Start Building? Let’s Talk Financing First

Whether you’re just exploring your options or ready to apply for a construction loan, the R-Value team is here to help you understand your choices and build a home that fits your life, now and in the future. Schedule a call with our team to talk through your construction options and start planning your next steps.