A Comprehensive Guide to Construction Loan Refinancing

After your home is built, converting your construction loan to a permanent mortgage is the next step. We have your comprehensive guide to construction loan refinancing here.

What Is Construction Loan Refinancing?

This program converts milestone-based draws to traditional monthly payments. This allows borrowers to:

Get a permanent mortgage for completed construction

Construction loans are short-term and to cover building costs during the construction phase only. Refinancing replaces this temporary program with a long-term mortgage once the home is finished.

Choose from different programs

Refinancing offers the flexibility to choose a new program that fits your current situation, like fixed or adjustable-rate refinancing, and government-backed programs like FHA, VA, and USDA refinancing.

Access home equity

If the value of your property has increased after construction, refinancing can let you access the equity you've accrued. These funds can be used for landscaping, furniture, or unexpected project costs.

What Can Construction Loan Refinancing Be Used For?

Transitioning to a long-term mortgage

Once construction is complete, refinancing allows borrowers to switch to a permanent mortgage. Depending on the program, you may get a fixed interest rate, low or no down payment, and other benefits.

Consolidating debt

Borrowers with multiple loans tied to a construction project can refinance to consolidate them into one loan. This simplifies repayment and can save money on interest over time.

Accessing additional funds

If construction costs exceed the initial budget, refinancing can provide additional funds to cover unexpected expenses or changes to the original project.

Pros

Cons

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Construction Loan Refinancing Programs

VA Construction Loan Refinancing

USDA Single-Close Construction Loan Refinancing

Jumbo Construction Loan Refinancing

How Do I Know If Construction Loan Refinancing Is Right for Me?

The building stage of your home is finished

Refinancing is the next step once construction on your home is complete and you're ready to move in. This replaces milestone-based financing with a traditional mortgage.

You have more expenses than you thought

If your project has exceeded the initial construction budget, or you want to fund additional upgrades, refinancing can give you access to more money to complete your home.

Your property value has increased substantially since the start of the project

If the value of your home has risen due to construction progress or market conditions, refinancing can help you take advantage of the increased equity.

When Is the Best Time to Refinance a Construction Loan?

The best time to refinance a construction loan is when your home is built. If you don’t already have a construction-to-permanent mortgage that converts automatically upon project completion, you’ll need to find a new mortgage program that can take the place of your existing construction loan.

You can also refinance your construction loan to another construction loan if you’ve run into cost issues and have realized the project will be more expensive than you initially anticipated.

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FAQ

What happens if my property isn’t fully completed when my construction loan is ready to be refinanced?

Typically, properties need to be at or near completion before refinancing. However, if your project is behind schedule or still under construction, you may be able to extend the loan or use a special program to roll remaining construction costs into the new loan.

Do I need a new appraisal when refinancing my construction loan?

Yes, you will need an appraisal that estimates the as-completed value of the property rather than its current, partially built state. This reflects the property’s expected market value once construction is finished and determines the loan-to-value (LTV) ratio used in underwriting. It may also include schedules and blueprints for any remaining work to confirm that the project meets local code requirements.

Does refinancing require detailed documentation of construction costs?

Refinancing a construction loan typically requires borrowers to show how the original construction funds were used. This includes a cost breakdown or itemized budget showing labor and material expenses, invoices or receipts for completed work, and other key project tracking documents.

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