Additional Information
What is a Construction Loan?
A construction loan is a short-term mortgage designed to finance the cost of building a custom home from start to finish. Unlike traditional home loans, the funds are released in stages—called draws—as construction progresses.
Once your home is complete, many lenders offer a construction-to-permanent loan option, which automatically converts your short-term construction loan into a traditional mortgage.
How a Construction Loan Works
- Pre-Approval: We review your budget, credit, income, and project plans.
- Builder Approval: Lender evaluates your chosen builder’s credentials and track record.
- Loan Closing: The loan is funded for the construction phase, typically 6–18 months.
- Draw Schedule: Funds are released in set stages (foundation, framing, roofing, interior, final).
- Conversion to Permanent Loan: At completion, you either pay off the loan or roll it into a traditional fixed or adjustable-rate mortgage.
Types of Construction Loans
- Construction-to-Permanent Loan (One-Time Close): One application, one closing, financing both the build and the long-term mortgage.
- Construction-Only Loan: Short-term loan that must be refinanced or paid off when construction is done.
- Owner-Builder Loan: For borrowers acting as their own general contractor (stricter qualification).
Who Can Benefit from a Construction Loan?
- Buyers building a custom home on land they own or plan to purchase.
- Homeowners tearing down and rebuilding on their existing lot.
- Individuals who want more control over home design and features.
Construction Loan Requirements in 2025
- Credit Score: Often 680+ for best terms.
- Down Payment: Typically 20%–25% (some lenders allow 10%–15% with strong qualifications).
- Builder Approval: Licensed, insured, and experienced in similar projects.
- Detailed Plans & Budget: Must include architectural drawings, timelines, and cost breakdowns.
- Appraisal Based on Completed Value: Loan is based on the home’s projected value after construction.
Advantages of a Construction Loan
- Custom Home Flexibility – Finance exactly what you want built.
- Interest-Only During Construction – Lower payments while your home is being built.
- One-Time Close Option – Saves time and closing costs.
Considerations Before Applying
- Requires more documentation and oversight than a traditional mortgage.
- Delays in construction can extend the loan term and increase interest costs.
- If not converting to permanent financing, you’ll need a plan to pay off or refinance the loan at completion.
Is a Construction Loan Right for You?
If you’re ready to build your dream home from the ground up, a construction loan provides the funding and flexibility you need. I’ll help you evaluate your options, work with your builder, and structure a financing plan that fits your budget and timeline.
