Construction Loan
A construction loan provides the funds needed during the building phase of your home. Unlike a traditional mortgage, which pays out all at once, a construction loan releases funds gradually as construction progresses. These loans are typically in place only during construction and are later converted to a long-term mortgage.
Draw Payments
Instead of receiving the full loan amount upfront, funds are released in stages called draws. Each draw corresponds to a major phase of construction, such as:
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Foundation
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Framing
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Mechanical systems (plumbing, electrical, HVAC)
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Drywall and interior finishes
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Final completion
Payments and Conversion
During construction, most borrowers make interest-only payments on the amount of money that has been drawn, not the full loan amount. This helps keep payments more manageable while your home is being built.
Once construction is complete and your home is ready for occupancy, the construction loan is typically converted into a permanent mortgage. This is often referred to as a construction-to-permanent loan or a “one-time close” loan.
