Construction Loans

What Is a Construction Loan?

A construction loan is short-term financing used to fund the cost of building a property from the ground up — or substantially rehabbing an existing one. Unlike a traditional mortgage, which is based on an existing property, a construction loan is disbursed in stages as the project progresses, rather than as a single lump sum at closing.

Most construction loans cover the cost of land, materials, labor, and permits, with funds released through a draw schedule tied to project milestones— such as foundation, framing, roofing, and so on. Once the property is complete, borrowers typically pay off the construction loan by refinancing into permanent financing or selling the finished property.

How Do Construction Loans Work?

If you're wondering how do construction loans work, the process differs from a standard mortgage in a few key ways:

1. Draw schedule — Instead of receiving the full loan amount upfront, funds are released in stages ("draws") as construction milestones are completed and verified, often through a third-party inspection.
2. Interest-only payments — During construction, most borrowers pay interest only on the funds drawn so far, not the full loan amount.
3. Short-term structure — Construction loans typically run 6 to 24 months, aligned with the expected build timeline.
4. Conversion or payoff — At completion, the loan is either paid off through the sale of the property or refinanced into a long-term mortgage.

For anyone specifically asking how does a construction loan work for a ground-up build versus a renovation: ground-up construction starts with vacant land, while rehab-focused construction loans fund major renovations to an existing structure. Both follow the same draw-based disbursement model.

How to Get a Construction Loan

Knowing how to get a construction loan starts with having the right documentation ready. Lenders typically want to see:

• A detailed construction budget and timeline
• Plans and specifications for the build
• A licensed, experienced contractor or builder
• The property or land you intend to build on
• A clear exit strategy — sale or refinance into permanent financing

If you're asking how to get a construction loan as a first-time borrower, working with a lender experienced in ground-up financing matters — they can help structure the draw schedule and set expectations for how funds are released throughout the project.

Ground Up Construction Loans

Ground up construction loans are built specifically for projects starting from raw or vacant land, rather than renovating an existing structure. These loans account for the full scope of a build — from site preparation and foundation work through final finishes — and are structured to release capital as each phase is completed and verified.

Construction Loan Rates

Construction loan rates are generally higher than rates on a conventional mortgage, reflecting the shorter term and higher risk profile of an unfinished property. Rates vary based on the lender, the borrower's experience, the loan-to-cost ratio, and the strength of the project plan. Because construction loans are short-term, borrowers should also budget for the cost of eventually refinancing into permanent financing once the project is complete.

VA Construction Loans

A VA construction loan allows eligible veterans and service members to use their VA loan benefit to finance the ground-up construction of a primary residence, often with no down payment required. VA construction loans follow the same draw-based disbursement process as conventional construction loans, but require a VA-approved builder and additional documentation specific to the VA loan program.

Get Started

Whether you're building from the ground up or planning a major rehab, our construction loan programs are designed to fund your project at every stage. Contact us today to discuss your build and get pre-qualified.

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