If you’re building a new home, undertaking a major renovation, or starting from an empty lot, you’ll likely need construction financing. A construction loan is specifically designed to cover the costs of building or significantly improving a property — and it works very differently from a standard mortgage.
In this guide, we’ll walk you through what a new construction loan is, how it works, the types available, and how to qualify so you can get your project off the ground with confidence.
A new construction loan is a short-term loan that funds the cost of building a property. It covers:
Unlike a traditional mortgage, where the full loan is disbursed at closing, a construction loan releases funds in draws as the work progresses. This ensures that money is available when needed, and only for completed stages of the project.
Construction loans often have variable interest rates tied to an index like the prime rate plus a margin.
Example:
Payments increase as more funds are drawn.
A new construction loan is a powerful tool to bring your home-building vision to life. With the ability to finance land, construction costs, and even certain fees, these loans make it possible to move from blueprint to move-in under a single financing plan.
Success depends on preparation: choose the right lender, work with a reputable builder, budget carefully, and understand your loan terms. With the right strategy, your new construction project can be a smooth, well-financed path to your dream home.