A construction loan is financing offered on a short-term basis that is used to fund the process of building a house from beginning to end. These loans may also pay for the land, building plans, permits, labor, and materials. You also may be able to access contingency reserves in case your project ends up costing more than you expected.

How Do They Work?

These terms on construction loans are typically 12 to 18 months, as they are intended to be used during the building process. However, there are some loans that will convert over to a mortgage once the construction is complete.

These loans are not secured by a house, which means the approval process is much more difficult. The lender is likely to request copies of the architectural plans and look at the financial situation you’re in before approving. They will also most likely need to see a proposed timeline and budget.

Most of the time, you will only need to pay interest on the funds as you withdraw them, but you’ll want to check with your lender to see the stipulations on your construction loan.

Types of Construction Loans

There are several types of construction loans:

Construction to permanent loan
Construction only loan
Owner builder loan
Renovation loans


Just like interest rates, the rates on these loans are based on the term, the size of the loan, and the creditworthiness of the borrower.


This is not a quick approval process, you will need to go through a fairly stringent approval process before funds will be provided. You will most likely need good to excellent credit, good income, low debt-to-income ratio, 20% down payment, approval of project/construction budget, and more. Contact Lighthouse Capital when you’re ready to begin the application process for your construction loan.