California Construction Loans
Build Your Vision From Ground Up

A construction loan is short-term financing for building new structures or major renovations. Unlike traditional mortgages, funds are disbursed in draws as construction progresses rather than all at once. You pay interest only on drawn funds during construction. Most construction loans are 12-24 months and either convert to permanent financing upon completion or require refinancing/sale.

As you complete construction phases, you submit a draw request to the lender. The lender sends an inspector to verify work completion matches the request. Once approved (usually 3-7 days), funds are released to pay contractors and suppliers. Typical draw schedules include: land/mobilization (10-15%), foundation (15%), framing (20%), MEP rough-in (15%), drywall (10%), finishes (15%), completion (5-10%).

Key requirements include: detailed plans and permits, contractor bids and construction budget, 20-30% equity (land equity often counts), minimum credit score of 680+, construction experience (varies by lender), and demonstrated ability to complete the project. Lenders evaluate both your qualifications and the project viability.

Yes, some lenders work with first-time builders, though terms may be more conservative. You'll strengthen your application with: a licensed, experienced contractor, detailed and realistic budget, strong personal credit and financials, larger down payment, and a clear exit strategy. Some lenders require 1-3 completed projects for certain loan types.

Loan-to-Cost (LTC) compares the loan to total project cost (land + hard costs + soft costs). Loan-to-Value (LTV) compares the loan to the appraised value upon completion. Construction loans are typically underwritten to the lesser of: 75-80% LTC or 65-70% of completed LTV. Example: $1M project cost, $1.2M completed value = max loan around $750K-800K.

Construction-to-permanent (C2P) loans combine construction and permanent financing in one loan with one closing. During construction, you pay interest only on drawn funds. Upon completion, the loan automatically converts to a traditional mortgage (fixed or adjustable). C2P saves closing costs compared to separate construction and permanent loans.

An interest reserve is a portion of the loan set aside to make interest payments during construction. Instead of paying monthly interest out-of-pocket, payments come from the reserve. This is especially helpful for spec projects with no income during construction. The reserve is typically 12-18 months of projected interest, built into the total loan amount.

Construction loans typically take 30-60 days to close, depending on complexity. Timeline factors include: appraisal (2-3 weeks for construction appraisals), permit verification, contractor documentation review, and title/survey work. Having complete documentation (plans, permits, bids, contractor info) ready can significantly speed up the process.