Skip to content
The Mayberry blog

Understanding the Nuts and Bolts of Construction Loans

Embarking on creating your dream home is an exciting journey! One essential aspect to understand is how construction loans work. In this friendly blog post, we’ll break down the complexities of construction loans into simple, digestible bits so you can confidently navigate this financial avenue for your dream home.

What is a Construction Loan?

At its core, a construction loan is a specialized type of loan designed to finance the construction of a new home. Unlike a traditional mortgage, where you receive a lump sum upfront, construction loans are disbursed in stages, often referred to as “draws,” to cover the various phases of your project.

The Stages of a Construction Loan

Application and Approval:
Just like any other loan, the process begins with an application to a lender.
Lenders evaluate your creditworthiness, your project’s scope and cost, and other factors.
Once approved, you’ll discuss the loan terms, including interest rates and repayment schedules.

Before breaking ground, you and Mayberry Homes will work together to get a contract, detailed plans, selections, and permits

Disbursement of Funds (Draws):
Funds are released in installments or draws, typically based on project milestones.
After each stage of construction is completed, an inspector assesses the work, and if approved, the lender disburses the corresponding funds.

Interest-Only Payments:
During the construction phase, you’ll usually make interest-only payments on the disbursed funds.
These payments help manage your financial burden until the project is completed.

Conversion to a Mortgage:
Once construction is finished, the loan can be converted into a traditional mortgage.
The amount borrowed during construction is then added to the mortgage balance.

Key Considerations

Down Payment:
Construction loans typically require a substantial down payment, often 20% or more of the project cost. Ask our preferred lenders about potential programs that may require a lower down payment.

Interest Rates:
Although interest rates on construction loans tend to be higher than those for traditional mortgages, Mayberry Homes build cycle is typically less than six months. Once construction is finished, you will convert to a traditional mortgage with a more favorable rate.

Lender and Builder Coordination:
Effective communication between your lender and builder is crucial. Mayberry Homes has worked with a great number of lenders over the years and identified four preferred lenders that go above and beyond as well as make the process smooth for everyone.


Construction loans may seem complex at first glance, but they are a valuable tool for turning your housing dreams into reality. By breaking down the stages and understanding key considerations, you can navigate the world of construction loans with confidence.

Remember, a solid plan, clear communication, and prudent financial management will be your best allies on this exciting journey toward creating your dream home. With the right approach, a construction loan can help you build not just a house but a place where cherished memories are made. Happy building!

Question? We’re here to help!