A construction loan finances building a new home from the ground up — whether you are buying land and building or constructing on a lot you already own. Funds release in draws as work progresses, and the loan converts to a permanent mortgage when the build is complete.
Unlike a standard purchase loan on a finished home, a construction loan covers the cost of building — land purchase when guidelines allow, builder contracts, materials, permits, and soft costs. The lender underwrites based on the completed value of the home, not just raw land or a slab in progress.
Construction dollars are not disbursed all at once. They are released in draws as your builder hits milestones — foundation, framing, mechanicals, drywall — with inspections confirming work before each payment. During the build you typically make interest-only payments on funds that have been drawn, not the full loan amount.
When construction finishes and a Certificate of Occupancy is issued, the loan either converts automatically to a permanent mortgage (one-time close) or you close a new permanent loan (two-time close). Ryan and Steve align your builder timeline, lot plan, and closing structure before you sign a contract — so there are no surprises mid-build.
Both paths fund the build in draws — but how you close and lock your permanent rate differs significantly.
A single closing covers construction and permanent financing. One set of closing costs, and your rate is often locked for both phases subject to program rules. When the home is complete and a CO is issued, the loan converts to a standard mortgage without a second closing.
You close a short-term construction loan first, then apply for a permanent mortgage after the build. Two closings and two fee sets — but you can shop permanent rates and products when the home is finished and appraised at completed value.
While the house is being built, payments are usually interest-only on amounts the lender has already disbursed — not the full loan balance. That keeps carrying costs lower until you move in and full principal-and-interest payments begin.
Draw schedules protect you, your builder, and the lender. Funds flow only when verified work is complete, which reduces the risk of overpaying upfront or running out of budget before the home is livable.
Understanding the construction loan timeline helps you plan builder contracts, move-out dates, and permanent payment start dates.
Step 1
Choose a lot, builder, and floor plan. Ryan and Steve review program fit, down payment, and draw schedule before you commit.
Step 2
One-time or two-time close — your construction loan funds are established and the draw account is ready.
Step 3
The builder completes milestones. Inspectors sign off before each draw releases the next round of funds.
Step 4
After final inspection and CO, the loan converts or you close your permanent mortgage and move in.
Related guides to help you compare options and move toward pre-approval.
Single closing for construction and permanent financing — how it works and who it fits.
Separate construction and permanent loans — two closings and rate-shopping flexibility.
When funds release during the build and what inspections trigger each draw.
Program options, timelines, and the full construction financing hub.
2MG Daily
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A construction loan finances building a new home from the ground up — whether you are buying land and building or building on a lot you already own. Funds are released in draws as the builder completes milestones, not in one lump sum at closing.
A standard purchase loan funds a completed home. A construction loan covers land (when allowed), hard costs, and soft costs while the house is being built. During construction you typically pay interest only on amounts drawn. When the home is finished, the loan converts to a permanent mortgage or you close a new one.
One-time close (construction-to-permanent) uses a single closing for construction and permanent financing — one set of fees and often one rate lock for both phases. Two-time close means a separate construction loan first, then a new permanent mortgage after the Certificate of Occupancy is issued — two closings and more flexibility to shop permanent rates later.
No. All loans are subject to credit, income, and property approval. Rates, fees, and program availability can change without notice and may not be available in all states. This page is educational — not a commitment to lend. Contact us for a personalized pre-approval review.
Know your building budget and closing structure before you sign with a builder. Ryan & Steve can match you to the right one-time or two-time close program — not a commitment to lend; subject to credit and property approval.