How Construction Loans Work

Building and renovating a home can be an expensive labour of love to get your existing home or property just right to become your dream home. The cost of materials and labour of the construction phase can stack up faster than people realize, which is when many people turn to lenders for a construction mortgage. This is short-term construction financing that typically runs six to eighteen months and covers the construction process and construction costs, not to buy a finished home.

At Tribecca, we guide you through how construction loans work  from the first questions to the final close, so you know exactly what to expect along the way.

Unlike a traditional mortgage that gives a lump sum upfront, construction loans typically release funds in stages. The first draw often comes once the foundation is poured, with later advances tied to each building phase. Before money is released, an inspection confirms the work matches the construction plans.

During home construction, Tribecca structures the loan so payments are interest only and based on the funds already advanced rather than the entire loan amount. This setup helps manage cash flow if you are still paying rent or carrying an existing mortgage while the build is underway.

When the project is finished, the financing transitions into long-term repayment. At this stage, closing costs and other factors may come into play, but with Tribecca guiding the process, and a reliable general contractor handling the build, the move into permanent financing is straightforward.

Construction loans are designed to bridge the short window of active building with most terms running six to eighteen months to give enough time to complete a custom built home or major renovation before moving into a long-term solution. At that point most borrowers  refinance the entire loan into a conventional mortgage. 

Since construction loans offer higher risk than conventional mortgages, lenders often charge higher interest rates. At Tribecca, interest is charged only on the amount advanced at each stage. 

At Tribecca, approval begins with looking at  construction plans, permits, and a budget.  Capacity also matters, so we review your down payment, income and credit. 

If you already have an existing mortgage, we can leave it in place and provide a construction-only loan. We can also finance land purchase and construction costs together when needed. Because we’re a direct construction loan lender with flexible guidelines, approvals move quickly.