How
construction loans work

Overview

This guide covers construction loan process and mechanics — including how these programs work, what lenders look for, and how to get started. Qualification requirements vary by lender and program type. All loan programs are subject to credit approval and lender-specific criteria.

• Program availability varies by lender
• Qualification requirements vary by scenario
• Multiple program types available
• Speak with a licensed MLO for your situation

Getting Started

JumboLoan.com works with wholesale and portfolio lenders to provide access to programs not available at retail banks. Start our AI-assisted application or call us to discuss your scenario — a licensed MLO will identify the programs best suited to your situation.

• Start at AIMortgageApplication.com
• Licensed MLO reviews your scenario
• Multiple programs compared simultaneously
• NMLS# 1967971 — verify at NMLSConsumerAccess.org

Follow one build from closing to keys

The clearest way to understand construction lending is to walk a real sequence. At closing, the lender funds (or credits) the land and establishes the construction budget — say $1,200,000 total cost. No cash moves to the builder yet. The builder pours the foundation and requests the first draw; the lender sends an inspector, confirms the work, and wires that stage's funds. Your first interest bill arrives — calculated only on the amount drawn, perhaps $150,000, so it is small. Framing completes: second draw, second inspection, interest now accrues on a larger balance. The rhythm repeats through dry-in, mechanicals, and finishes — typically five to seven draws over six to fourteen months — until the certificate of occupancy issues and the final draw releases (often with retainage held until punch-list completion).

At completion, a construction-to-permanent loan converts automatically into its pre-agreed mortgage; a standalone construction loan is paid off by a new permanent mortgage you arrange.

The moving parts that make or break the process

• The draw schedule is negotiated up front and should mirror your builder's actual cash needs — mismatches cause the classic "builder waiting on money" stall.
• Inspections protect you as much as the lender: an independent set of eyes confirms your money bought completed work.
• The interest reserve: many loans build your construction-period interest into the budget itself, so the build carries its own payments — confirm whether yours does.
• Change orders must route through the lender when they move the budget; informal side-deals with the builder are how projects outrun their funding.
• Timeline cushions: construction periods come with deadlines and extension fees — build slack into the schedule you commit to.

Nearly every construction-loan horror story traces to one of these five, and every one is manageable with attention up front.

What it takes to qualify

Lenders underwrite three things at once: you (income, credit — typically 680–700+ — and reserves beyond the down payment), the project (complete plans, line-item budget with contingency, appraisal of the to-be-built value), and the builder (license, insurance, track record, financial stability). Down payments commonly run 10–20% of total project cost for owner-occupied builds, more at jumbo scale. It is more documentation than a purchase mortgage — and it is entirely orderly when assembled before application rather than during. That assembly is where we start every construction file. NMLS# 1967971.

Quick answers

Who requests each draw — me or the builder?

Typically the builder initiates against completed stages, with your visibility and the lender's inspection as controls. Your contract should mirror the loan's draw schedule exactly.

What if an inspection fails?

The draw pauses until the work verifies — a feature protecting you. Persistent failures are the early-warning system on builder trouble; take them seriously.