Construction Loan.

In plain English

A construction loan is a short-term loan that funds the building of a home rather than the purchase of a finished one. Instead of handing over the full amount at once, the lender releases money in stages (called draws) as construction reaches milestones like the foundation, framing, and finishing. During building you usually pay interest only on the money drawn so far. When the home is done, the loan either converts into a regular mortgage (a construction-to-permanent loan) or is paid off by a separate mortgage you take out at completion.

01Why it matters

Building a home means you are paying interest while you have no house to live in yet, and if the build runs over budget or behind schedule, your costs and your timeline both stretch, so the financing terms deserve close reading.

02The math, step by step

You borrow $300,000 to build a home. The lender does not give you all of it up front. It releases a draw after the foundation, another after framing, and so on. You pay interest only on what has been drawn, so early on your payment is small. When the home is finished, the loan converts to a standard 30-year mortgage at the rate you lock at that point, and you begin regular principal-and-interest payments.

03What this is NOT

04Receipts

Every figure on this page is sourced to a primary document. Tap to open the original.