Construction Loans in California

Who calls about construction loans, and what you need first

Most of our construction loans are for investors doing ground-up spec homes in Los Angeles and Orange County. When the phone rings, the first question is usually “what’s my rate and how much can I get?” But the first thing you actually need is a realistic, line-item budget from a licensed contractor and a solid timeline for your permits. Without stamped plans and a real cost breakdown, a lender can’t do anything, because we are lending on the future value of a house that doesn’t exist yet.

What we do not offer

We do not offer construction loans for owner-occupied homes, whether a primary residence or a second home. If you want to remodel or add to your own home, a HELOC or a cash-out refinance on the existing home is usually the route, and we do both.

The real terms

A 680 credit score and 20% to 30% down are the real numbers. Lenders want real skin in the game. We can typically lend up to 75% or 80% of the loan-to-cost or the as-completed value, whichever is lower. If you own the land free and clear, the land equity usually counts as your down payment.

Most lenders will not finance an owner-builder unless you are a licensed general contractor who builds homes for a living. Expect to use a vetted, licensed, third-party contractor. The construction loan is interest-only on the amount drawn while you build, which is typically about 12 to 18 months.

Self-employed investors and bank statement construction loans

Yes, a bank statement construction loan is possible on an investment build. We look at 12 or 24 months of your business deposits to calculate income instead of your tax returns. Because ground-up construction and alternative income verification are both higher risk, the lender may cap leverage closer to 65% or 70% instead of 80%, and require heavier cash reserves. For a self-employed investor who writes off most of their income, it can be what gets the project funded.

How California construction loan draws work

Construction loans fund in stages tied to completion milestones. Typical draw schedule:

Draw 1 (10–15%): Initial funding for site prep, permits, foundation, and slab.
Draw 2 (15–20%): Framing complete, roof on, exterior walls weathertight.
Draw 3 (15–20%): Rough plumbing, electrical, HVAC installed.
Draw 4 (10–15%): Drywall, insulation, exterior finish.
Draw 5 (15%): Interior finish — flooring, cabinets, paint, fixtures.
Draw 6 (10%): Final mechanical, appliances, landscape, final inspection.
Draw 7 (5–10%): Punch list, certificate of occupancy, final reconciliation.

Each draw requires:
- Lender inspection (typically a fee of $150–$250 per draw)
- Lien releases from subcontractors
- Updated insurance certificates
- Completion percentage signed off by the appraiser or inspector

During construction, you pay interest only on the amount drawn — so your payment grows as the build progresses. At completion, the loan amortizes over the chosen term.

What California-specific rules apply to construction loans?

California has its own quirks that affect construction financing:

Title 24 energy compliance: California's stringent energy efficiency requirements (solar mandate on new construction since 2020, all-electric requirements in many jurisdictions). Lenders verify Title 24 compliance documentation.

California Contractors State License Board (CSLB): All general contractors and major subs must hold valid California licenses. The lender verifies CSLB status before closing.

Mechanic's lien protection: California has strong mechanic's lien rights for unpaid subcontractors. Lenders require lien releases at every draw and may hold final 10% retention until the lien period expires.

Permits and impact fees: California construction projects face substantial permit and impact fees ($30,000–$150,000 on a typical new SFR). These are part of the construction budget the lender funds.

Insurance during construction: Builder's risk insurance is required during construction, plus general liability and workers' comp on the contractor. Lenders verify continuous coverage.

What goes wrong on a construction loan

1. The subject-to appraisal. If the land plus your construction budget equals $1.5 million, but the appraiser says the finished house will be worth $1.3 million, you have to bring the $200,000 shortfall to closing in cash.
2. Draw delays. The lender holds the funds in escrow and releases them in draws as work is completed. If the lender’s inspector is slow to sign off on the framing, your contractor does not get paid, and if the contractor is not paid, the crew can walk off the site.
3. Budget overruns. Lumber prices jump, or you change the finishes halfway through. Lenders require a contingency reserve in the loan, but it can disappear fast.
4. Permits. You cannot close the loan while the city is still reviewing the plans. We need permits ready to pull before we fund.

How long does a construction loan take?

Plan on 45 to 60 days at minimum, and 90 days is common. A 30-day close on a ground-up construction loan is not realistic. The delay is usually not your finances. It takes weeks for the appraiser to pull comparables for a house that does not exist yet, and the underwriter needs time to vet your contractor’s license, insurance and line-item budget. On a construction loan we are underwriting you, the land and the builder at the same time.

— Mike Basti, President and Mortgage Broker · Save Financial