Financing & ROI
What is a construction loan?
A construction loan is a short-term financing product that funds a build in stages (draws) tied to inspection milestones. Interest is paid only on drawn amounts. At project completion the loan typically converts to a permanent mortgage (construction-to-perm) or is paid off via refinance.
California construction loans require detailed plans, a signed fixed-price contract, builder qualification (CSLB license, insurance, bond), and a contingency reserve of 5–15%.
Rates run 1–2% above conventional mortgages during the construction phase. Construction-to-perm loans lock the permanent rate at closing; standalone construction loans require a separate refinance.
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Related questions
- • How do construction loan draws work?
- • What's a HELOC vs construction loan?
- • Do construction loans require a down payment?
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