Most-asked: 20%+ down (custom) / 25–35% equity (developer) · rates ~7.5–9% / 8–13% · 680+ credit · draws release on inspection · interest only on drawn funds · C2P = one close. Details below.
Basics & cost
How much down payment do I need?
Generally 20%+ for a custom-home construction-to-permanent loan, and 20–30% for construction-only. Developers bring 25–35% equity, more for first-timers or harder asset classes.
What are construction loan rates in 2026?
Custom-home C2P ~7.5–9% (≈1–2 pts above conventional); developer ground-up ~8–13% (banks 8–10%, debt funds 10–13%, SBA 504 up to 90% LTC at 7–9%). Illustrative; change frequently. Rates →
What credit score do I need?
680+ typically, 720+ for best rates. Some CU/SBA programs go to 660; private debt funds weigh the deal over credit.
What is LTC?
Loan-to-cost — the share of total project cost the lender funds. Custom ~up to 80%; developer 65–85%.
Are construction loans more expensive than a regular mortgage?
During the build, yes — higher rate plus inspection and reserve costs. A C2P loan converts to standard pricing at completion.
Is building cheaper than buying?
Not necessarily. Building gives control and can create equity, but soft costs, contingency, and carry add up. See Pros & Cons.
Draws & reserves
What is a draw schedule?
A plan releasing funds in stages (foundation, framing, mechanicals, finish) after an inspector verifies each milestone.
Do I pay interest on the whole loan during construction?
No — only on funds drawn, so your payment rises as the build advances. Model it in the calculator.
What is a contingency reserve?
A 5–10% cushion lenders require for overruns. Budget an extra 15–20% above estimates yourself, too.
What is an interest reserve?
Money set aside (often inside the loan) to cover interest during the build, so you're not paying out of pocket while the property earns nothing.
What are soft costs?
Permits, utility hookups, impact fees, surveys, inspections, design — they can add 15–25% to hard costs.
What do inspections cost?
Typically $300–600 each, with 4–6 over the build. Budget them alongside appraisals and title.
Structure & builder
What is construction-to-permanent (C2P)?
One loan, one closing that converts to your permanent mortgage — lock the perm rate up front, pay costs once, no requalify.
What is construction-only?
A short-term loan you refinance separately at completion — two closings, re-priced perm rate.
Do I need a licensed builder?
Almost always — licensed, insured, workers'-comp, often bonded, and lender-approved. See Eligibility.
Can I be my own builder?
Owner-builder loans exist but face higher scrutiny and rates. Most use a GC, which lenders prefer.
Are there FHA or VA construction loans?
Yes — FHA construction-to-permanent (~5–7%) and VA construction options exist for eligible borrowers.
Can I finance land plus the build?
Yes — land + build is common; some lenders offer bridge-to-construction that funds land then converts once permits are secured.
Timeline & exit
How long does underwriting take?
30–60 days (custom) / 45–60 days (developer) with complete plans, budget, and docs.
How long is the construction term?
Interest-only for 12–18 months (custom) or 12–24 months (developer). SFR builds often finish in 6–12 months.
What if the build runs long?
Most loans allow one extension, +3–6 months, roughly $500–1,500. Plan the timeline as a range.
How do I repay it?
Convert or refinance to a permanent mortgage (custom), or refinance after stabilization — often passing a DSCR test (developer).
Reviewed by the licensing team at Save Financial, a California-licensed mortgage brokerage (NMLS #377740, DRE #01875766) founded in 2009 and serving all 58 counties from offices in Newport Beach and Marina del Rey.