Building a new home in California — whether a custom estate in Newport Beach or a modern family home in the Inland Empire — requires a different type of financing than buying an existing property. Construction loans fund the building process and convert to permanent financing when the home is complete.
How Construction Loans Work
Unlike a standard mortgage where you receive the full loan amount at closing, construction loans disburse funds in stages (called "draws") as construction milestones are completed. The lender inspects the work at each stage before releasing the next draw.
During the construction phase (typically 12-18 months), you make interest-only payments on the amount disbursed — not the full loan. Once the home is complete, the loan either converts to a permanent mortgage or you close a separate permanent loan.
One-Time Close vs. Two-Time Close
One-time close (also called construction-to-permanent) combines the construction loan and permanent mortgage into a single closing. You lock your permanent rate upfront, pay closing costs once, and the loan automatically converts when construction is complete. This is the most convenient option.
Two-time close involves separate closings for the construction phase and the permanent mortgage. This allows you to shop for the best permanent rate closer to completion but involves two sets of closing costs and more paperwork.
Requirements
Construction loans in California typically require 20-25% down payment (based on the total project cost including land), credit scores of 680+ (720+ preferred), detailed construction plans and budget, a licensed California contractor with a track record, and verification of land ownership or a plan to purchase the lot.
The lender evaluates the completed home's projected value through an "as-completed" appraisal to ensure the project makes financial sense.
Owner-Builder vs. Contractor
Most lenders require a licensed contractor to oversee construction. Owner-builder loans (where you act as your own general contractor) are available but harder to find and typically require construction experience.
California-Specific Considerations
California's permitting process can add months to construction timelines — factor this into your planning. Environmental reviews, particularly in coastal or fire-prone areas, may be required. Building costs in California are among the highest in the nation — budget accordingly and include a 10-15% contingency.
Save Financial offers construction loan programs throughout California. Call (888) 703-1840 to discuss your building project.