In short
A construction loan funds a building project in phases through a draw schedule tied to milestones, with interest-only payments on drawn funds during the build. It either converts to a permanent mortgage (construction-to-permanent) or is paid off by a separate end loan, and covers ground-up, builder, and spec-home projects.
Reviewed by Christian Penner, NMLS #368289 · Last updated July 7, 2026
How does a construction loan work?
A construction loan funds a building project in phases rather than all at once. As work reaches agreed milestones, the lender releases money in draws, and an inspection typically confirms progress before each release. During construction you usually pay interest only on the funds drawn so far. When the home is finished, the loan either converts to permanent financing (a construction-to-permanent loan) or is paid off by a separate end loan. Ground-up, builder, and spec-home projects each have their own structure.
Key takeaways
Building a home or spec property is exciting, but the financing can feel like a maze of draws, inspections, and deadlines. Our team helps buyers, homeowners, and builders across the communities we serve structure construction loans that fund the project in stages and convert cleanly when it's done. We specialize in loans that are tough to close, and construction is exactly where that experience pays off.
Financing That Matches How You Build
A construction loan isn't like a regular purchase mortgage. Money is released as the project progresses, not in one lump sum, and the underwriting looks at plans, budgets, and your builder as much as it looks at you. Our team knows how to package all of that so your project stays funded and on schedule. Where other lenders stop, we keep working.
The Two Common Structures
- Construction-to-permanent — One loan that funds the build and then converts to a permanent mortgage when the home is complete, so you close once
- Construction-only — A short-term loan that funds the build and is paid off by a separate end loan or sale, useful for spec builders
How Draws Work
Instead of receiving all the money upfront, funds are released in a draw schedule tied to construction milestones — foundation, framing, mechanicals, and so on. An inspection usually confirms each phase before the next draw is released. During the build you typically pay interest only on the amount drawn to date, which keeps carrying costs manageable while work is underway.
Ground-Up, Builder, and Spec
We structure financing for several project types:
- Ground-up custom homes for owners building their primary or second home
- Builder financing for professional builders managing one or several projects
- Spec homes built to sell, where speed and a clean payoff matter most
Each comes with different documentation, reserve, and experience requirements, and we shop a broad network of lenders to find the right structure for your situation.
What Lenders Look At
Expect the file to include your plans and specs, a detailed budget, your builder's credentials, and a realistic timeline. Strong preparation here is what keeps a construction loan moving. We help you assemble it so underwriting has what it needs the first time.
Let's Get Your Project Funded
Whether you're a homeowner building a dream house or a builder scaling your pipeline, our team will help you structure financing that funds the work and finishes clean. Let's find the best path forward.
All program details and figures on this page are illustrative examples for general education only and are not an offer to lend. Program availability, pricing, and guidelines vary and are subject to change. Contact our team for current details specific to your situation.
Quick facts
- Loan type
- Construction financing (to-permanent or construction-only)
- Funding method
- Staged draws tied to milestones
- Payments during build
- Typically interest only on drawn funds
- Project types
- Ground-up, builder, and spec homes
- Key underwriting inputs
- Plans, budget, builder, and timeline
- Down payment / equity
- Varies by program — lot equity may count; ask for current figures
Is this loan right for you?
Who it's for
- Homeowners building a custom primary or second home
- Buyers who own a lot and want to build on it
- Professional builders financing one or several projects
- Spec builders who need fast, clean project financing
- Anyone whose plans and budget are ready for underwriting
Who it may not fit
- Buyers purchasing an existing, move-in-ready home
- Projects without finalized plans, a budget, or a qualified builder
Pros and cons
Pros
- Funds release in stages so you only carry what you've drawn
- Interest-only payments on drawn funds during the build
- Construction-to-permanent lets you close a single time
- Flexible structures for custom, builder, and spec projects
- We shop a broad lender network to match your project type
Trade-offs to weigh
- Requires detailed plans, a budget, and a qualified builder upfront
- Draws and inspections add coordination the file must stay ahead of
Frequently asked questions
What is the difference between construction-to-permanent and construction-only?
Construction-to-permanent is a single loan that funds the build and then becomes your long-term mortgage, so you close once. Construction-only is a short-term loan paid off by a separate end loan or sale, which many spec builders prefer. We'll help you choose.
How are funds released during construction?
Through a draw schedule tied to milestones like foundation, framing, and finishes. An inspection typically confirms each phase before the next draw is released, which protects both you and the lender.
Do I make payments while the home is being built?
Usually you pay interest only on the funds drawn so far during construction, then move to full payments once the loan converts or the end loan closes. Ask our team for the current details on your program.
Can I act as my own builder?
Some programs allow owner-builders, but most prefer a licensed general contractor with a track record. We'll match your project with lenders whose guidelines fit your situation.
What down payment or equity do I need?
It varies by program, project type, and your experience. Lot equity you already own can often count toward it. Ask for the current figures based on your specific project.
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Last updated July 7, 2026 · Reviewed by Christian Penner, NMLS #368289. This page is educational and not a commitment to lend; program details change — ask for current figures.