MBReviewed by Mike Basti, Mortgage Broker & Founder · NMLS #377740
Quick Answer
In 2026, California construction loans generally require: 20%+ down (custom home) or 25–35% equity (developer), 65–85% LTC, rates ~7.5–9% (custom C2P) or ~8–13% (developer), 680+ credit, 12–24 month interest-only terms, a draw schedule with inspections, 5–10% contingency reserve, and a licensed, insured builder. Figures are illustrative for 2026.
On this page
The core numbers (2026)
| Requirement | Custom home (C2P)* | Developer / commercial* |
|---|---|---|
| Down / equity | 20%+ | 25–35% |
| LTC | up to ~80% | 65–85% |
| Rate | ~7.5–9% | ~8–13% (bank 8–10%) |
| Credit | 680+ (720+ best) | 680+ / deal-driven (funds) |
| Term (build) | 12–18 mo, interest-only | 12–24 mo, interest-only |
| Sizing | Cost + completed appraisal | Lower of LTC, LTV & DSCR |
| Contingency reserve | 5–10% | 5–10%+ |
| Builder | Licensed & insured, lender-approved | Vetted GC + budget |
| Underwriting | 30–60 days | 45–60 days |
*Illustrative for 2026; set by individual lenders and vary by project, sponsor, and market. Not an offer. See how rates price →
The hidden line item — soft costs & reserves: The number that surprises first-time builders isn't the interest rate — it's everything around the hard construction cost. Permits, utility hookups, impact fees, surveys, inspections, and design can add 15–25% on top of your builder's contract, and lenders will require a 5–10% contingency reserve plus often an interest reserve to cover payments during the build. Budget these from day one and your project stays fundable; ignore them and you'll face a cash call mid-build. We build the full stack — hard costs, soft costs, contingency, and interest reserve — before you commit. Model it in the calculator →
Two kinds of construction loan
Custom home (residential)
- Build your own home on your lot
- ~7.5–9%; FHA/VA & owner-builder options exist
- 20%+ down; 680+ credit
- Usually construction-to-permanent
- Repaid by converting to a mortgage
Developer / commercial
- Ground-up multifamily, mixed-use, spec
- 8–13%; banks vs debt funds vs SBA 504
- 25–35% equity; sized on lower of LTC/LTV/DSCR
- 12–24 mo, recourse burning off at stabilization
- Repaid by refinance or perm conversion
Construction-to-permanent vs construction-only
| Construction-to-Permanent | Construction-Only | |
|---|---|---|
| Closings | One | Two |
| Rate lock | Permanent rate locked up front | Re-priced at refinance |
| Closing costs | Paid once | Paid twice |
| Requalify later? | No | Yes |
| Down payment | Often lower | Often 20–30% |
Reserves & how draws work
- Draw schedule — funds release in stages (e.g. foundation, framing, mechanicals, finish) after an inspector verifies each milestone.
- Interest-only on drawn funds — you pay interest only on money actually released, so carry rises as the build progresses.
- Contingency reserve — 5–10% held for overruns.
- Interest reserve — many loans bake in a reserve to cover payments during construction.
Builder requirements
| Requirement | Why |
|---|---|
| Active CA contractor license | Verified before funding |
| General liability insurance | Protects the project |
| Workers' comp coverage | Required for the crew |
| Fixed-price contract / budget | Sizes the loan & draws |
| Track record | Lender approval & smoother draws |
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.