Construction Loans
Finance your custom home build or major renovation from the ground up — with a single loan that covers both construction and permanent financing.
Building your dream home starts with building the right financing.
What Is a Construction Loan?
A construction loan provides the financing to build a new home or complete a major renovation. Unlike a traditional mortgage where you receive the full loan amount at closing, construction loans disburse funds in stages (called “draws”) as the building progresses. Once construction is complete, the loan either converts to a permanent mortgage or is paid off with a separate mortgage.
The most popular option is a “construction-to-permanent” or “one-time close” loan, which combines the construction financing and permanent mortgage into a single loan with one closing. This saves you time, money, and the uncertainty of qualifying for a second loan after building.
Who Is This Best For?
Construction loans are for anyone building a custom home on their own land, buying a lot and building, or undertaking a major renovation that goes beyond cosmetic improvements. They’re also used by builders and investors developing new residential properties.
If you’ve found the perfect piece of land, have plans for your dream home, and are ready to build, a construction loan makes it possible — even if the home doesn’t exist yet.
What You’ll Need to Qualify
- Plans & permits: Approved building plans, construction timeline, and required permits
- Licensed builder: A licensed, insured general contractor with a track record
- Down payment: Typically 10-20% of the total project cost (land + construction)
- Credit score: Usually 680+ for the best terms
- Budget: Detailed construction budget with line items for each phase
- Land: Either already owned (can count as your down payment) or being purchased
Construction loans are more complex than standard mortgages because the lender needs to evaluate the project — not just the borrower. Having a solid builder, clear plans, and realistic budget are essential. I’ll walk you through each step of the process.
Key Advantages of Construction Loans
One-Time Close Option
Construction-to-permanent loans combine your construction financing and permanent mortgage into a single loan with one closing, one set of fees, and one approval process. No second qualification needed when building is complete.
Interest-Only During Construction
During the building phase, you only pay interest on the funds that have been disbursed — not the full loan amount. This keeps your payments manageable while your home is being built.
Land Equity Counts
If you already own the land, its value can count toward your down payment. In many cases, this means you may not need additional cash out of pocket to start building.
Build Exactly What You Want
Unlike buying an existing home and compromising, a construction loan lets you build your home exactly the way you envision it — every layout choice, finish, and feature tailored to your needs.
Common Questions About Construction Loans
How do construction loan draws work?
Funds are released in stages as construction milestones are completed — foundation, framing, roofing, interior, etc. A lender-approved inspector verifies the work before each draw is released. This protects both you and the lender by ensuring the project stays on track and on budget.
Can I be my own general contractor?
Some programs allow owner-builders, but most lenders require a licensed general contractor. This requirement exists because owner-built projects have a higher risk of delays and cost overruns. If you’re set on being your own GC, we can discuss which programs allow it.
What if construction costs more than estimated?
This is why a detailed budget and contingency reserve are critical upfront. Most lenders build in a 5-10% contingency. If costs exceed the budget significantly, additional financing options may be available, but it’s best to plan carefully from the start.
How long does a construction loan last?
The construction phase typically lasts 6-12 months, depending on the project scope. With a one-time close loan, the construction loan automatically converts to a permanent 15 or 30-year mortgage once building is complete and the home passes final inspection.
Let’s Start Planning Your Build
No pressure. No obligation. Just clarity.
Most people start with a quick call — it makes everything easier.
Garry McDonald | NMLS #1922072 | DRE# 01781703 | (949) 534-6686