Construction Loans
Financing That Grows With Your Home
Building a home from the ground up is an exciting opportunity and a complex financial undertaking. Traditional lenders often shy away from construction financing because it’s different from typical mortgages. The home doesn’t exist yet. Funds are drawn in phases as construction progresses. Risk profiles change as the project evolves.
That’s where construction loans come in. And that’s where Dream House Mortgage specializes.
Construction loans provide phased funding as your home is built, with interest-only payments during construction and a seamless transition to a permanent mortgage when the home is complete. It’s financing designed for the realities of new home building.
At Dream House Mortgage, we work with builders and borrowers to structure construction financing tailored to your project. We manage each phase, from foundation to finish, so you can focus on building your dream home.
A construction loan isn’t a compromise. It’s the right tool for a new home build.
Phased Financing for New Home Construction
A construction loan is a short-term mortgage that provides funds in phases as your home is built. Rather than receiving a lump sum upfront (like a traditional mortgage), funds are disbursed at key construction milestones: foundation, framing, roof, mechanical systems, interior finishes, and completion.
The construction process typically takes 12-18 months. During this period, you pay interest only on the funds that have been drawn. As each phase completes and funds are drawn, your interest payment increases proportionally. Once construction is complete and the home is move-in ready, the construction loan converts to a permanent mortgage.
Here’s how it works: You finalize terms with the lender and your builder. A construction inspector verifies completion of each phase. Funds are drawn. You pay interest on those funds. Once the home is complete, the construction loan is paid off and replaced with permanent financing.
The beauty of this structure is its flexibility and risk management. The lender has oversight throughout construction. You draw funds only as needed. Your permanent lender evaluates the completed home (not a concept).
The result? Financing that works for new construction, with expert oversight at every stage.
The Real Advantages of Construction Financing
Everything You Need to Know About Construction Financing
Loan Amount Range
Loan-to-Value (LTV)
- Standard: 80% LTV (based on completed home value)
- Up to 90% LTV available with a strong financial profile
- LTV is based on the appraiser's estimate of the completed home's value
Credit Score Requirements
- Best rates and terms: 740+
- Good rates: 700-739
- Acceptable: 680-699
- Minimum: Sometimes 640 (depends on lender and financial profile)
Your credit score impacts your rate and terms, but so does your relationship with the builder and the project's feasibility.
Debt-to-Income Ratio
- Maximum 43% DTI (standard, based on projected permanent mortgage payment)
- Up to 50% DTI with strong compensating factors
- DTI is calculated on the permanent mortgage payment amount, not interest-only construction payments
Down Payment / Equity Required
- Minimum: 10-20% of the estimated final home value
- Standard: 20%
- Optimal: 25%+ (better terms and more flexibility)
The larger your down payment, the more favorable your terms.
Loan Terms & Draw Schedule
- Typical construction period: 12-18 months
- Draw schedule aligns with construction phases: foundation, framing, envelope, mechanical, drywall/finishes, completion
- Number of draws typically: 4-10, depending on project complexity
Interest Rates & Payments
- Interest-only during construction (no principal payments)
- Interest rate: Typically prime rate + margin (varies by lender)
- Monthly payment increases as funds are drawn and construction progresses
- Example: Month 1 (foundation): $3,000/month. Month 6 (framing): $6,500/month. Month 12 (completion): $9,500/month (interest-only)
Permanent Mortgage Terms
- 30-year fixed (most common)
- 20-year fixed
- 15-year fixed
- The rate is locked in at the construction loan closing
- Terms established upfront (no surprises at conversion)
Construction Inspector & Appraisal
- Third-party inspector verifies each phase completion
- Appraisal conducted at loan origination (estimated completed value)
- Final appraisal is completed when construction is finished
- If the actual completed value differs from the estimate, terms may be adjusted
Property & Builder Requirements
- Licensed builder (required by most lenders)
- Builder insurance and bonding (required)
- Builder must have adequate experience and track record
- Plans and specifications approved by lender
- Building permits and approvals obtained
- Property must be buildable (proper zoning, no environmental issues)
Strategic Process Designed for Your Success
We review your builder’s experience, reputation, and financial stability. We evaluate the plans, specifications, and budget. We ensure the project is feasible and well-planned.
We provide a pre-approval outlining the loan amount, interest rate, and permanent mortgage terms. You’ll know your total project cost and monthly obligations before breaking ground.
We order an appraisal of the estimated completed home value. This establishes the loan amount and permanent mortgage terms. Your rate is locked in at this point.
We close the construction loan with all necessary documentation. Construction can begin. You’ve established the construction timeline and drawing schedule.
As each construction phase completes, we coordinate inspections. We verify the work. We arrange fund draws. We keep you informed of progress and any adjustments.
We conduct inspections at key phases. We communicate with your builder about the timeline and quality. We address any issues proactively.
Once construction is complete and the home is move-in ready, we conduct a final inspection and appraisal. The construction loan converts to the permanent mortgage. You move in.
After conversion and move-in, we’re here for refinancing, access to equity, or any future financing needs. Your home is complete, but your relationship with us continues.
Why Builders and Borrowers Choose Construction Financing
Benefit 1: Phased Funding Reduces Financial Risk
Benefit 2: Interest-Only Payments During Build
Benefit 3: Builder Accountability & Oversight
Benefit 4: Lock In Your Permanent Rate
Benefit 5: Flexible Budget Management
How Construction Loans Stack Up
Feature | Construction Loan | Conventional Mortgage | Builder Financing |
Loan Funding | Phased during construction | Lump sum (after completion) | Varies by builder program |
Payment Type | Interest-only during build | Principal + interest | Interest-only or deferred |
Rate Lock | At closing | At closing | Often not locked upfront |
Lender Oversight | Yes (inspections at each phase) | No (after completion) | Varies by builder |
Flexibility | High (adjusts to reality) | Low (based on existing home) | Varies |
Permanent Conversion | Automatic at completion | N/A (already permanent) | May require refinancing |
Timeline | 12-18 months construction | N/A | Varies |
Best For | New construction builds | Existing homes | Qualified builder programs |
