A residential construction loan funds the ground-up build ansd development of a home, disbursing money in stages as work is completed rather than all at once. A conventional loan, by contrast, funds the purchase of a home that's already built. That difference in purpose shapes everything else about how the two loans work: how funds are released, how interest accrues, and how long the loan runs.
How Is a Construction Loan Different from a Conventional Loan?
Construction loans and conventional loans serve different jobs. A construction loan pays for building or developing a property. A conventional loan pays for buying one that's already move-in ready. Three practical differences follow from that.
How Are Construction Loan Funds Disbursed?
A conventional loan disburses the full amount at closing, covering any existing liens, closing costs, and the seller. A construction loan disburses in draws instead. As the project hits verified milestones, typically confirmed by a third-party inspection, the lender releases the next portion of funds. You don't get the whole loan up front because the project isn't built yet.
How Does Interest Work on a Construction Loan?
With most construction loans, you're only charged interest on the portion of the loan you've actually drawn, not the full committed amount. A conventional loan starts accruing interest on the entire balance the day it funds. This is one of the areas where terms vary most by lender, so it's worth reading your loan documents closely rather than assuming.
What Are Typical Construction Loan Terms?
Construction loans usually run 12 to 24 months. Conventional mortgages typically amortize over 15 to 30 years. The shorter term reflects the loan's purpose: it's meant to cover the build, not to be the long-term financing for the finished home.
How Does Builders Capital's Process Compare to a Bank Construction Loan?
Builders Capital is a private lender, which means our borrowers are business entities rather than individual homeowners financing their own residence. Banks typically serve both. Our underwriting and draw process is built around builder timelines rather than retail mortgage timelines.
About Builders Capital
Builders Capital is a private construction lender offering financing across bridge, ground-up construction, development, and build-to-rent for builders and developers. The company is headquartered in Puyallup, Washington.
