Construction Loan Financing Options

Financing a Construction Project Requires the Right Structure

Construction financing is different from a standard mortgage because the property may not yet be complete, and loan funds are generally released in stages as work progresses.

Appropriate structure depends on whether borrowers are building primary residences, renovating existing homes, developing investment properties, purchasing land, or refinancing into permanent financing after construction.

I can help you compare construction-loan options from multiple lenders based on the borrower, builder, plans, budget, property, and intended use.

Explore Construction Loan Options

One-Time-Close Construction Loan: Combines the construction financing and permanent mortgage into one transaction, subject to program and lender requirements.

Two-Time-Close Construction Loan: Uses one loan for the construction phase and a separate permanent mortgage after the project is completed.

Renovation Loan: May finance the purchase or refinance of an existing property together with eligible renovation or improvement costs.

Ground-Up Construction: Financing for eligible new residential construction projects beginning with vacant land or a cleared building site.

Investor Construction Financing: Business-purpose financing for eligible speculative builds, rental developments, major renovations, and other investor projects.

Commercial Construction Financing: Financing for eligible multifamily, mixed-use, retail, office, industrial, hospitality, or owner-occupied commercial construction projects.

What Is a One-Time-Close Construction Loan?

A one-time-close construction loan—sometimes called a single-close or construction-to-permanent loan—combines the construction phase and permanent mortgage into one closing.

The borrower and project are generally reviewed for the full transaction before construction begins. After closing, funds are released through a draw process as approved construction milestones are completed. When construction is finished and all final requirements are satisfied, the loan transitions into its permanent phase without requiring a separate mortgage closing.

How It May Work:

1. Application and Project Review: The lender reviews the borrower, builder, plans, specifications, budget, land, appraisal, and proposed permanent loan.

2. Closing Before Construction: The construction and permanent financing are established through one closing, subject to the selected program.

3. Draws During Construction: Funds are released in stages after inspections or other verification that the applicable work has been completed.

4. Permanent Loan Phase: After construction and final lender requirements are completed, the loan transitions into the permanent mortgage phase.

One-Time Close Versus Two-Time Close

One-Time Close:

Two-Time Close:

Neither structure is automatically better. The appropriate choice depends on the project, borrower qualifications, available programs, expected timeline, and need for flexibility.

• One-Time Close: One initial loan closing
• One-Time Close: Construction and permanent financing arranged together
• One-Time Close: May reduce duplicate closing costs
• One-Time Close: Permanent-loan structure is selected before construction
• One-Time Close: Borrower and project must meet the program's requirements upfront
• One-Time Close: Changes during construction may be more limited
• Two-Time Close: Separate construction and permanent loans
• Two-Time Close: Permanent financing is completed after construction
• Two-Time Close: May provide more flexibility when selecting the final mortgage
• Two-Time Close: Requires a second qualification and closing
• Two-Time Close: Future rate and program availability may change
• Two-Time Close: Additional closing costs may apply

Renovation and Major Improvement Financing

Some construction and renovation programs may finance improvements to an existing property rather than a completely new build.

Eligible work may include:

Eligible improvements, contractor requirements, contingency reserves, inspections, and completion timelines vary by program.

• Structural repairs
• Room additions
• Major interior renovation
• Kitchen and bathroom improvements
• Roof, electrical, plumbing, or HVAC work
• Accessibility improvements
• Energy-efficiency upgrades
• Property conversion or reconfiguration
• Repairs needed to make a property financeable

Ground-Up Construction Financing

Ground-up construction financing may be used for an eligible new residential project beginning with vacant land or a cleared building site.

The lender may review the land, plans and specifications, builder, construction contract, detailed budget, appraisal based on completed value, permits, project timeline, and intended occupancy.

Financing may be structured differently for an owner-occupied custom home, an investor-built property, or a larger development project.

What May Be Reviewed for Construction Financing

Documentation and available loan structures vary based on the property, project, builder, borrower, and lender.

• Property address or land location
• Current ownership of the land
• Purchase price or land value
• Construction plans and specifications
• Builder or contractor information
• Construction contract
• Detailed project budget
• Project timeline
• Appraisal based on completed value
• Permits and approvals
• Borrower credit and income
• Down payment or land equity
• Cash reserves
• Intended occupancy
• Existing liens
• Contingency funds
• Exit or permanent-financing strategy

The Builder and Project Must Also Be Reviewed

Construction-loan approval generally involves more than qualifying the borrower. The lender may also review the builder, project plans, budget, permits, construction contract, insurance, timeline, and draw process.

Depending on the lender, the builder may need to provide:

Owner-builder projects may have more limited financing options and should be discussed before plans are finalized.

• License and insurance
• Experience or project history
• References
• Financial information
• Construction contract
• Cost breakdown
• Draw schedule
• Plans and specifications
• Required permits

How Construction Funds Are Released

Construction funds are generally not provided to the borrower as one unrestricted lump sum. Instead, money is released through draws as work is completed.

A typical draw process may include:

1. The builder requests payment for completed work.

2. An inspection or project review is completed.

3. The lender confirms the applicable work and documentation.

4. Approved funds are released.

5. The process repeats until construction is complete.

Interest during construction is commonly based on the amount disbursed, but payment structures vary by lender and program.

One-Time-Close Construction Loans Explained

Section includes embedded video overview for closer examination of how one-time-close construction financing combines construction and permanent mortgage phases.

Planning a Construction or Renovation Project?

Review the property, land, builder, plans, budget, intended occupancy, and construction timeline before choosing a loan structure.