What is a construction loan?

Construction loans are short-term loans used for new home construction and renovations, including land, contractor labor, building materials, permits and more. With these loans, the contractor receives disbursements as work progresses. Types of construction loans include construction-to-permanent loans and lot loans, among others.

Explore financing options from U.S. Bank.

One-time close construction-to-permanent loans

Construction-to-permanent financing funds the construction or renovation of your home and then automatically converts to a permanent mortgage loan after construction is finished. During the construction phase, your lender authorizes payments, or “draws,” to cover the cost of land, materials, labor, permits and other expenses. They work closely with an inspector to ensure the construction continues on schedule and on budget.

The construction phase usually ranges from 12 to 18 months, but some projects may take longer. During this time, you’ll make interest-only payments on the balance of the construction loan. When construction is complete, the loan automatically converts to a long-term mortgage and you’ll begin paying both principal and interest. We offer a one-time closing on custom constructed homes, with fixed- or adjustable-rate mortgage (ARM) options, so you can save on fees and closing costs and lock in your rate before construction begins.

Financing for buying and renovating a home

A construction-to-permanent loan can be used to purchase a home that needs renovating. These types of loans cover the sale price of the home, plus the cost of the home renovations, and are based on the home’s value after repairs and upgrades are completed. With this one-time close option, you eliminate the need for multiple loans to finance your home renovations. And it allows you to choose from a wider selection of properties during your home search, including fixer-uppers and homes listed in “as-is” condition.

Lot loans

A lot loan is a mortgage that pays for a residential lot on which a single-family detached home will be built. It’s different from a construction loan in that it only pays for the lot the home will be built on.

With lot loans, the initial interest rate is fixed for a set period and then becomes variable, adjusting periodically for the remaining life of the loan. For example, a 3-year ARM lot loan has a fixed rate for the first three years and an adjustable rate for the rest of the loan.

Wondering about your construction loan options? Talk to us.

A successful building project takes communication, coordination, planning and patience. And it all starts with the right financing. Our experienced, dedicated team can guide you through your construction loan options and beyond.

Connect with one of our construction-certified mortgage loan officers to get started.

Find a mortgage loan officer

Take advantage of these cost-saving benefits from U.S. Bank.

Save on your new investment with these options.

One-time close

Save on fees and closing costs, plus lock in your rate with our one-time close feature. It lets you start your loan process before the construction of your home, and when construction is complete, the loan will roll into permanent financing for the remaining term.

Client credit

If you have an existing first mortgage with U.S. Bank, a U.S. Bank Smartly® Checking account or an existing Gold or Platinum Checking Package, you may be eligible for a client credit1 of 0.25% of the loan amount deducted from the closing costs of your new first mortgage, up to a maximum of $1,000.2

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Get answers to common questions about construction loans and more.

Construction loans are short-term loans that cover the cost of building a new home. These loans are usually shorter in duration and are paid directly to the contractor in installments, or “draws,” as building milestones are met. An inspection is typically required before each payment is released to the contractor. To learn more about how construction loans work, connect with one of our construction-certified mortgage loan officers.

Wondering about your construction loan options? Talk to us.

A successful building project takes communication, coordination, planning and patience. And it all starts with the right financing. Our experienced, dedicated team can guide you through your construction loan options and beyond.

Connect with one of our construction-certified mortgage loan officers to get started.

Find a mortgage loan officer
Start of disclosure content

Disclosures

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rate and program terms are subject to change without notice. Mortgage, Home Equity and Credit products are offered through U.S. Bank National Association. Deposit products are offered through U.S. Bank National Association. Member FDIC.

  1. Footnote 1

    Clients may be eligible for this credit with an existing U.S. Bank first mortgage, a U.S. Bank Smartly Checking account or an existing Gold or Platinum Checking Package. A minimum of $25 is required to open a U.S. Bank Smartly Checking account. For a comprehensive list of account pricing, terms and policies see the Consumer Pricing Information disclosure and the Your Deposit Account Agreement. These documents can be obtained by contacting a U.S. Bank branch or calling 800-872-2657.

    Return to content, Footnote 1
  2. Footnote 2

    To calculate the U.S. Bank Client Credit, take 0.25% of your new first mortgage loan amount and deduct it from the closing costs. For purchase or refinance transactions, the maximum credit is $1,000. Certain mortgages may not be eligible for stated credits. Offer may not be combined with any other mortgage offers and can only be applied once per property within a 12-month period.

    Return to content, Footnote 2