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
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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.
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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.
