Construction Loans

One-line summary: Financing for building a new primary residence, second home, or investment property, covers the construction phase and converts to a permanent mortgage at completion.

Best for

Homeowners building a custom home, buying a lot and constructing on it, or undertaking a substantial tear-down rebuild. Available both as single-close construction-to-permanent (one loan, one closing) and two-close (separate construction and permanent loans).

Key terms (typical)

Attribute	Typical Range
Eligible projects	New construction primary, second home, investment
Loan amount	Varies by program; typically up to jumbo limits
Loan-to-cost	Up to 90–95% on owner-occupied; lower for investment
Construction term	12 months typical; some programs to 18 months
Construction phase	Interest-only on funds drawn, paid monthly
Permanent phase	Converts to 15- or 30-year fixed (single-close) at completion
Credit score	680+ typical; 720+ for best pricing
Builder requirements	Licensed, insured, often with builder approval by the lender

Why borrowers choose this program

• One closing for construction-to-perm. Single-close programs lock the permanent rate at the start, eliminating the risk of rate movement during construction.
• Interest-only during construction. You pay interest only on funds drawn, not on the full loan amount, keeping carry costs manageable during the build.
• Construction draws coordinated. The lender funds draws on a schedule based on construction milestones, with inspections to verify progress.
• Conversion to standard mortgage. Once construction is complete, the loan converts to a standard amortizing mortgage at the rate locked at closing.

Considerations

• Builder approval can be a bottleneck. Many construction lenders require approval of the specific builder, which can disqualify smaller or newer builders.
• Plans, budget, and timeline scrutinized. Underwriting requires complete plans, a fixed-price contract, a draw schedule, and often a borrower contingency reserve.
• Cost overruns are the borrower’s problem. If construction costs exceed the budget, the borrower covers the difference. Plan a contingency.
• Slower close than a standard mortgage. Expect 45–60 days for construction loan underwriting.