By Prerna Kapoor, CLHMS | REAL Brokerage | June 19, 2026
You found the perfect lot in Franktown, or maybe you have a builder lined up in Castle Pines, and then you hit the question nobody prepared you for: how do you actually pay for a house that does not exist yet?
Building a home is different from buying one, and the financing works differently too. A regular mortgage funds a finished house. A construction loan funds the process of building it, in stages, with the bank watching each step. Here is how it works in Colorado and what to plan for in 2026.
Two kinds of construction loans, and why the difference matters
There are two main paths. A construction-to-permanent loan, sometimes called a single-close loan, combines the building phase and your final mortgage into one product. You apply once, close once, and lock your permanent rate up front. During construction you make interest-only payments on the money drawn so far, and once the county issues your certificate of occupancy, the loan automatically converts into a regular mortgage.
A stand-alone construction loan covers only the building phase. When the house is done, you pay it off by getting a separate permanent mortgage, which means a second application and a second set of closing costs, often $3,000 to $8,000 more. The National Association of Realtors has a helpful overview of construction loan types if you want to read further. For most people building a primary home, the single-close option is simpler, and it protects you from one big risk I will come back to.
How the money actually reaches your builder
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This is the part that feels unfamiliar. You do not get the full loan amount at closing. Instead, the lender releases money in stages called draws, tied to a schedule everyone agrees to up front. A typical draw schedule follows the build: site work and foundation, then framing, then mechanical systems like plumbing and electrical, then interior finishes, and a final draw at completion.
Before each draw is released, the lender usually sends an inspector to confirm the work was actually done. That protects both you and the bank from paying for work that is behind schedule. Your builder gets paid as milestones are hit, which is also why a clear contract and a realistic schedule matter so much. If you are weighing building against buying something already finished, my comparison of new construction versus resale homes in Colorado is worth a look.
What it takes to qualify, and what it costs in 2026
Construction loans ask for more than a standard mortgage, because the lender is taking on more risk while the home is still just plans and a dirt lot. Plan on a down payment of 20% to 25% of the total project cost, which is land plus construction combined. A few lenders will go to 10% or 15% for borrowers with excellent credit, usually 740 and up, plus strong reserves. So on a $600,000 project, budget roughly $120,000 to $150,000 down in most cases.
Rates run a bit higher than a conventional purchase loan. As of spring 2026, construction-to-permanent loans are generally in the 7.25% to 8.75% range, and stand-alone construction loans tend to run higher, around 7.75% to 9.25%. You will also need a licensed builder, a detailed budget, and full plans before a lender will commit. If you are self-employed, expect extra documentation, which I cover in my guide to buying a Colorado home while self-employed.
The timeline and the one risk worth planning for
A typical custom build runs nine to fourteen months from groundbreaking to move-in, and delays happen. Weather, permits, and material backorders all play a part. That timeline is exactly why the single-close, construction-to-permanent loan is so popular right now. With a stand-alone loan, you have to get your permanent mortgage when the house is finished, and if rates have climbed during construction, you are stuck taking whatever the market offers that month.
A construction-to-permanent loan lets you lock your permanent rate at the start, so you know your long-term payment before the foundation is even poured. In a year when rates can move quickly, that certainty is worth a lot. If timing is on your mind, the broader Colorado buyer financing playbook lays out how construction loans fit alongside the other ways to finance a home here.
Building a home in Colorado is one of the most rewarding things you can do, and the financing is very manageable once you understand the moving parts. If you are thinking about building and want to map out the numbers before you commit to a lot or a builder, I am always happy to walk through it with you.
Prerna Kapoor | REALTOR® | Luxury Home Specialist
REAL Brokerage | 720-949-5450 | info@prernakapoor.com
CLHMS • RENE • PSA • ABR | International Sterling Society Award Winner
Prerna specializes in residential real estate across Parker, Aurora, Lone Tree, Castle Pines,
Highlands Ranch, Cherry Creek, Greenwood Village, and Centennial. She speaks English, Japanese,
and Hindi.
