I’m Michael DiVita — DRE #01372066 | NMLS #241655, DiVita Home Finance (DRE #01818285 | NMLS #323700), Tiburon, CA. I’ve been in California mortgage lending since 2000 and founded DiVita Home Finance in 2007. I’m known as a creative mortgage broker: when a bank says no, I find the lender and the loan structure that can say yes. Call (800) 239-1103.
Building a home in California — a custom home on a lot you own, a tear-down and rebuild, or a detached ADU — takes a different kind of loan than buying an existing house. Construction lending is also where banks say no most often: unusual properties, self-employed borrowers, owner-builders, trust vesting, and wildfire-zone insurance all trip up standard underwriting. This guide covers the loan types, what lenders require, and the California-specific issues that decide whether a build gets financed.
How a Construction Loan Works
A construction loan doesn’t fund all at once. The lender approves a budget, then releases money in draws as the project hits milestones — foundation, framing, rough-ins, drywall, completion. Before each draw, an inspector or the lender’s draw department verifies the work. During the build you typically pay interest only on the amount drawn so far, so payments start small and grow as the project progresses.
The lender underwrites three things: you (credit, income, reserves), the builder (license, insurance, experience), and the project (plans, a detailed cost breakdown, a realistic schedule, and an “as-completed” appraisal estimating what the finished home will be worth).
Types of Construction Loans
Construction-to-Permanent (Single Close)
One loan, one closing. It funds the build, then converts to a regular mortgage when the home is finished. You pay one set of closing costs, and depending on the program you can lock your permanent rate up front. Conforming single-close loans follow Fannie Mae’s standard purchase loan-to-value limits, which can mean a smaller down payment than many buyers expect — though many construction lenders set their own higher minimums.
Construction-Only (Two Close)
A short-term loan covers the build; when it’s done you refinance into a separate permanent mortgage. Two closings means two sets of costs and re-qualifying at the end, but it gives flexibility if you want to shop the permanent loan or expect rates to fall.
FHA One-Time Close
Combines construction and the permanent FHA loan. FHA allows 3.5% down with a 580+ credit score (10% down at 500–579), though construction lenders often require higher scores. The loan must fit within the county FHA limit — for 2026, from $541,287 up to $1,249,125 in the highest-cost California counties such as Marin and San Francisco. FHA mortgage insurance lasts for the life of the loan with less than 10% down, or 11 years with 10% or more down.
VA One-Time Close
Some lenders offer VA construction-to-permanent loans for eligible veterans, with no down payment for borrowers with full entitlement. Builder requirements and lender availability are the limiting factors, so this is a good place for a broker to shop.
USDA Single Close
For eligible rural areas and incomes, USDA’s guaranteed program allows a single-close construction loan with no down payment. Property eligibility is determined by USDA’s maps, and household income limits apply.
Jumbo, Bank Statement, and Owner-Builder Loans
- Jumbo construction: in Marin, San Francisco, and much of the Bay Area, land plus construction often pushes the loan above the conforming limit ($832,750 baseline, $1,249,125 in high-cost counties for 2026). Portfolio lenders handle these with stricter credit, reserves, and down payment requirements.
- Self-employed / bank statement construction: some non-QM lenders will qualify on bank statements instead of tax returns, at a higher rate.
- Owner-builder: California law allows owners to pull permits as owner-builders, but most lenders won’t finance a build without a licensed general contractor. Programs that do usually want you to hold a contractor’s license or show a track record, plus bigger reserves.
Financing an ADU
If you already own the home, you may not need a construction loan at all. Common paths are a HELOC, a cash-out refinance, or a renovation loan that includes the ADU. After the ADU is finished and rented, rental income may help you qualify for a refinance. See ADU financing in California.
Typical Requirements
| Item | What lenders usually look for |
|---|---|
| Credit score | Often 680–720+ for conventional and jumbo; FHA allows lower but lenders often overlay |
| Down payment / equity | Varies widely by program — from 0% (VA, USDA) or 3.5% (FHA) to 20%–25%+ for jumbo and portfolio loans |
| Land equity | If you already own the lot, its value usually counts toward your equity |
| Debt-to-income | Set by program and lender; construction lenders are often more conservative than standard purchase loans |
| Reserves | Commonly several months of payments; more for jumbo and owner-builder |
| Builder | Licensed California contractor (typically a Class B General Building license), liability insurance, workers’ comp, and lender approval |
| Project documents | Signed construction contract, plans and specs, itemized budget, draw schedule, permits or permit timeline |
| Appraisal | “As-completed” value based on plans and specs |
The Process, Step by Step
- Talk to a lender before you sign with a builder. Lender requirements affect the contract, budget, and schedule.
- Vet the builder. Check the license on the Contractors State License Board site, confirm insurance, and ask for references on similar projects.
- Finalize plans and a detailed budget, including soft costs (architect, engineering, permits, utility connections) and a contingency.
- Apply and submit the construction package with your income and asset documents.
- Appraisal and underwriting. Construction files take longer than standard purchases because the lender reviews the builder and the project, not just you.
- Close, then build. The builder requests draws; the lender inspects and releases funds.
- Completion and conversion. A final inspection and certificate of occupancy, then the loan converts (single close) or you refinance (two close).
California-Specific Issues
Costs and contingency
California is one of the most expensive places in the country to build, and Bay Area costs per square foot run well above national averages. Get firm bids, budget for soft costs, and carry a contingency. Cost overruns that exceed the loan budget have to come out of your pocket before the lender releases further draws.
Insurance and wildfire zones
During construction, lenders require a builder’s risk policy, and at completion the home needs regular homeowners coverage. In CAL FIRE Fire Hazard Severity Zones, including large parts of Marin, Sonoma, and Napa, finding a carrier can take time; some owners end up with the California FAIR Plan plus a wrap policy. Line up quotes before you close.
Permits and timeline
Permitting and plan review can take months in many Bay Area jurisdictions, and weather or inspection delays are common. Ask for a construction period with room to spare; extensions cost money.
Vesting in a trust
Many Bay Area owners hold title in a revocable living trust. Not every construction lender can close in a trust, so confirm it early. See mortgages and living trusts.
Land first, build later
If you haven’t bought the lot yet, you can finance land separately and then roll into a construction loan, or buy land and build under one single-close loan. See the California land loan guide.
When the Bank Says No
A lot of construction projects that get turned down at a bank are still financeable: a self-employed owner with strong bank deposits, an unusual property, a trust vesting issue, a jumbo loan size, or a project that needs a short-term bridge before the permanent loan. As a broker I can take the same file to lenders with different construction guidelines, including portfolio, non-QM, and private lenders for bridge or hard money situations.
Frequently Asked Questions
What credit score do I need for a construction loan in California?
Many conventional and jumbo construction lenders look for 680 to 720 or higher. FHA allows lower scores in its rules — 580 with 3.5% down — but many construction lenders set higher minimums. VA and USDA construction programs also exist through select lenders.
How much do I need to put down on a construction loan?
It depends on the program: VA and USDA allow no down payment for eligible borrowers, FHA allows 3.5%, conforming single-close loans follow Fannie Mae’s standard purchase limits, and jumbo or portfolio construction loans often require 20% to 25% or more. If you already own the lot, its value typically counts toward your equity.
What is a construction-to-permanent loan?
It’s a single loan that funds the build and then converts to a regular mortgage when the home is complete, with one closing and one set of closing costs. During construction you typically pay interest only on the funds drawn so far.
Can I get a construction loan for an ADU?
Yes, but homeowners with enough equity often use a HELOC, cash-out refinance, or renovation loan instead of a separate construction loan. The best option depends on your current rate, equity, and the size of the project.
Do I need a licensed contractor?
Almost always. Most lenders require a California-licensed general contractor with liability insurance and workers’ compensation. Owner-builder financing exists but is limited and usually requires a contractor’s license or a documented track record.
How long does it take to close a construction loan?
Longer than a standard purchase, because the lender reviews the builder, plans, budget, and an as-completed appraisal in addition to your finances. Start with your lender before finalizing the construction contract so requirements are built in from the start.
Related Resources
- ADU Financing in California
- Renovation Loans in California
- California Land Loan Guide
- Jumbo Loans in California
- HELOC vs. Cash-Out Refinance
- Bridge Loans in California
- Marin County Mortgage Broker
Official Sources & References
Talk to Michael Directly
DiVita Home Finance | Tiburon, CA | In lending since 2000, founded DiVita Home Finance in 2007. Michael DiVita DRE #01372066 | NMLS #241655. Company DRE #01818285 | NMLS #323700.
💬 Text: (310) 849-9124
