How a conventional two-time-close construction loan works
The construction loan funds the build through approved draws. During construction, the borrower typically pays according to the construction-loan terms. When the home is completed, a separate permanent mortgage is established through a second closing.
Why some borrowers choose this structure
- It separates the construction phase from the long-term mortgage.
- The permanent mortgage can be evaluated closer to completion.
- It can work well for borrowers building a custom home who want flexibility between construction and permanent financing.
What is reviewed
The borrower, builder, lot or land, plans, construction budget, completed appraised value, assets, reserves, credit and income all matter. If the lot is already owned, existing liens and equity are also part of the analysis.
What happens during the build
Construction funds are generally released in draws as work is completed and verified. The exact draw process, inspection requirements, interest calculation and documentation depend on the construction loan terms.
What happens at completion
The permanent conventional mortgage is a separate transaction. Updated income, assets, credit, appraisal or completion documentation may be required before the final loan closes.