Financing
How a Construction Loan Works in 5 Easy Steps
- 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.
- 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.
- Interest-Only Payments
- During construction (typically 6–18 months), you usually make interest-only payments on the amount disbursed, not the full loan.
- 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.
- Final Mortgage Terms
- After the home is completed, you’ll start making regular mortgage payments (principal + interest) just like a standard home loan.
