A construction loan is short-term financing that pays for building a home in stages (draws), with interest-only payments on the amount drawn. In California, expect roughly 10–20% down, a 680+ credit score, a licensed builder with approved plans and budget, and a rate modestly above a standard mortgage. Most borrowers use a single-close construction-to-permanent loan so it converts to a mortgage automatically when the home is done.
How construction loan rates are set
Construction loan rates run a bit higher than purchase-mortgage rates because the lender takes on more risk during the build (there’s no finished home as collateral yet). Pricing depends on your credit, down payment, the builder’s track record, and loan size. Because there’s no single "rate sheet" across lenders, shopping is where the savings are — one lender’s construction overlays can cost a point more than another’s.
California construction loan requirements
- Down payment: typically 10–20% of total cost or completed value
- Credit score: 680+ for best pricing (some programs lower)
- Builder: licensed, insured, and lender-approved, with a fixed-price contract
- Documents: plans/specs, line-item budget, and an appraisal of the completed value
- Reserves: several months of payments after closing
How the draws work
Funds release in stages as work is completed and inspected — foundation, framing, mechanicals, and final. You pay interest only on what’s been drawn, so payments start low and rise through the build. A single-close construction-to-permanent loan then converts to your permanent mortgage without a second closing.
Bottom line: Construction loans reward shopping — overlays and pricing vary sharply by lender. As a California broker we place your build with the construction lender that fits it best. Estimate first with our construction loan calculator, then get pre-approved.
Frequently asked questions
What are construction loan interest rates in California?
They typically run modestly above standard purchase-mortgage rates because of the added risk during the build, and vary by credit, down payment, builder, and lender. Shopping multiple construction lenders is the best way to lower your rate.
What credit score do I need for a construction loan?
Most California construction lenders want 680+ for the best pricing, though some programs go lower with more down payment and reserves.
How much down payment for a construction loan in California?
Usually 10–20% of total project cost or the completed appraised value, depending on the lender, your credit, and reserves.
Can I get one loan for construction and the mortgage?
Yes — a construction-to-permanent (single-close) loan funds the build and converts to your mortgage with one closing, avoiding a second set of closing costs.
Save Financial, Inc. — NMLS #377740, DRE #01875766. Equal Housing Opportunity. Figures are illustrative for 2026 and not an offer of credit or a guarantee of rates or approval.