Skip to main content

Financing

How a Construction Loan Works in 5 easy steps

  1. Loan Application & Approval
  • You apply with a lender and provide detailed construction plans, builder contracts, and cost estimates.
  • The lender evaluates your credit, income, and the construction project before approving the loan.
  1. Draw Schedule
  • Funds are not given as a lump sum.
  • Money is released in stages or “draws” as construction progresses (e.g., after foundation, framing, roofing, etc.).
  • Before each draw, the lender may inspect the site to ensure the work is completed as planned.
  1. Interest-Only Payments
  • During construction (typically 6–18 months), you usually make interest-only payments on the amount disbursed, not the full loan.
  1. Loan Conversion (Construction-to-Permanent Loan)
  • Once the home is finished:
    • The loan converts to a traditional mortgage (construction-to-permanent), or
    • You refinance into a separate mortgage
  1. Final Mortgage Terms
  • After the home is completed, you’ll start making regular mortgage payments (principal + interest) just like a standard home loan.