Ground-Up Construction Loans: How They Work From Land to Move-In

Building a home from the ground up gives you complete control over design, finishes, and layout — but financing a new build is fundamentally different from purchasing an existing property. Understanding how construction loans work before you break ground saves significant time, money, and frustration.

Construction Loan vs. Traditional Mortgage

A traditional mortgage funds the purchase of an existing property. A construction loan funds the building of a property that does not yet exist. Because there is no finished asset as collateral, construction loans carry more risk and have different structures, requirements, and interest rates.

Most construction loans are short-term — 12 to 18 months — and interest-only during the build phase. Once construction is complete, the loan converts to a permanent mortgage.

One-Time Close vs. Two-Time Close

A one-time close loan combines construction financing and the permanent mortgage into a single closing. You lock your rate once and pay one set of closing costs. When construction is complete, the loan automatically converts.

A two-time close involves separate closings for the construction loan and the permanent mortgage. This adds cost but can offer flexibility if you want to shop permanent rates at the end of construction.

How Draw Schedules Work

Funds are disbursed in draws tied to specific construction milestones: foundation, framing, rough-in mechanical, drywall and insulation, and final completion. A lender inspection confirms each milestone before funds are released.

What Lenders Evaluate

For end-users, lenders review credit, income, assets, detailed construction plans, specs, and a fixed-price contract with a licensed general contractor. For builders and investors, experience and financial strength are also evaluated.

At East Coast Mortgage, we structure ground-up construction financing for both end-users and experienced builders. Book a call to discuss your project.