How does a construction loan work?
NationwideReviewed October 2026
A construction loan is a short-term loan that pays for building or rehabilitating a home, released in stages as the work is completed rather than all at once. The CFPB says these loans often carry higher interest rates than regular mortgages. Payments may not start for six to 24 months. When the work is finished, the balance is either paid off in full or converted into a regular mortgage. Some construction loans do not convert automatically. Then you must apply for a new loan, and approval depends on your credit at that time. Site work such as foundations and utility connections can be part of a construction budget. Features vary widely, so the CFPB suggests comparing several lenders.