Written and reviewed by Jack Gladden, Senior Loan Officer, NMLS #1470164
Updated · 5-minute read · How these guides are written
Construction, lot and bridge loans in brief
- Construction loan
- Pays for a build in stages, called draws, as work passes inspections; you usually pay interest only during the build.
- One-time close
- A construction-to-permanent loan becomes your long-term mortgage when the home is finished, with one closing.
- Lot and land loans
- Buy the land first; expect a larger down payment and a shorter term than a home loan, especially for raw land.
- Bridge loans
- Short-term financing, usually 6 to 12 months, often from your current home’s equity, to buy before you sell or to close fast.
- Down payment
- Conventional construction loans often want around 20%; FHA, VA and USDA construction options can need less.
- Where
- Homes in California, Arizona, Florida and Ohio; investor and builder loans nationwide where permitted.
How construction loans work.
A one-time close, or construction-to-permanent, loan covers the build and becomes your mortgage. The alternative is a construction loan followed by a separate mortgage.
| One-time close | Two loans | |
|---|---|---|
| Closings | One | Two: one to build, one for the mortgage |
| Rate | Often set at the start for the permanent loan | The mortgage rate is set when the build is done |
| Costs | One set of closing costs | Two sets |
| Flexibility | Less if plans change | More: shop for the mortgage at the end |
Plans and a builder
Approved plans, a signed contract and a budget from a licensed builder the lender accepts.
Appraisal of the finished home
The appraiser values the home as it will be, which sets the loan amount.
Draws
Funds are released in stages after inspections, often four to six over the build.
Conversion
Once complete, the loan becomes, or is replaced by, your long-term mortgage.
FHA, VA and USDA have one-time-close construction options for homes you’ll live in. Building it yourself as an owner-builder is possible with a few lenders, usually with more experience and money required.
Lot and land loans.
- Improved lot
- Roads, utilities and permits in place; the easiest land to finance, with the lowest down payment.
- Unimproved or raw land
- No utilities or access yet; larger down payments, often far above 20%, and shorter terms.
- Building soon?
- A construction loan can often pay off a lot loan, or include the land from the start.
Bridge loans.
- What they do
- Give you cash, usually from your current home’s equity, to buy your next home before the first one sells, or to close quickly.
- Term
- Usually 6 to 12 months; some run from three months to a few years.
- Payments
- Often interest-only, with the balance due in a single balloon payment when your home sells.
- Cost
- Higher rates and fees than a mortgage, in exchange for speed and flexibility.
Buying before you sell? Compare a bridge loan with a HELOC on your current home and with cash-backed offer programs.
Building or bridging?
Tell me the project, the land or the two homes, and your timeline. I’ll show you which loans fit and what they cost.
The risks.
- Cost overruns and delays. Budgets slip; lenders often require a contingency, and you cover anything above it.
- Appraisal gaps. If the finished home appraises below the cost, you may need more cash.
- Two payments with a bridge loan. Until your old home sells, you may carry both.
- Balloon risk. If your home takes longer to sell, the bridge loan can come due before it does.
How we get started.
Tell me the plan
Land, builder, budget and timeline, or the two homes for a bridge.
I compare structures
One-time close, two loans, land loans and bridge options.
Approval
Including the builder, plans and appraisal of the finished home.
Close and build
Draws through the build, then your long-term mortgage.
Construction, lot and bridge loans, answered plainly.
Is it hard to get a construction loan?
Harder than a regular mortgage: lenders review you, the builder, the plans and the budget, and often want a larger down payment.
Do you need 20% down for a construction loan?
Often around 20% on a conventional construction loan; FHA, VA and USDA construction options can need less for a home you’ll live in.
How much does a construction loan cost per month?
During the build, usually interest only on the amount drawn so far, so payments start small and rise as funds are released. I’ll estimate it for your budget at current rates.
Do land loans require 20% down?
Often 20% or more, especially for raw land without utilities or road access.
What is a bridge loan and how does it work?
A short-term loan, often secured by your current home, that lets you buy before you sell; it’s usually repaid in one payment when your home sells.
How long do you have to pay off a bridge loan?
Usually 6 to 12 months, sometimes longer. See also: Bridge loan equity calculator.
How much does a bridge loan cost?
More than a mortgage: a higher rate, plus fees often around 1% to 3% of the loan, and interest for the months you hold it. A HELOC on your current home can cost less if you qualify.
Does anyone do bridge loans anymore?
Yes. Some banks, specialist lenders and buy-before-you-sell programs offer them; I compare the options. See also: Bridge loan equity calculator.
How much is a land loan per month?
It depends on the rate, the term and whether payments are interest only, and land loans usually carry shorter terms and higher rates than home loans. Enter the loan amount and the rate you’re quoted in the mortgage payment calculator for the principal and interest.
Is it hard to get a loan for a lot?
Harder than for a house: fewer lenders make land loans, and most want a larger down payment, strong credit and a plan for the land. Raw land without utilities or road access is hardest; a lot ready to build on, or a construction loan that includes the land, is easier.
Is it a good idea to get a bridge loan?
When you need to buy before your current home sells and can carry the cost for a few months, yes. It costs more than a regular mortgage, so it makes most sense when the sale is likely to close soon. Compare it with buy-before-you-sell programs. See also: Bridge loan vs HELOC to buy before you sell.
How many years is a lot loan?
Usually shorter than a home loan, often a few years up to 15 or 20, and some end with a balloon payment. Many buyers refinance the lot into a construction loan when they’re ready to build.
What credit score do I need for a construction loan?
Many lenders look for about 680 or higher on a conventional construction loan, because the lender takes on the build as well as you. FHA and VA construction options often start lower, around 620. Each lender sets its own minimum, so a stronger score widens your choices.
What credit score do I need for a land loan?
Usually higher than for a home loan, often 680 to 720 or more, along with a larger down payment, because land is harder to sell if the loan goes bad. Land you plan to build on soon, with utilities and road access, is easier to finance than raw land.
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