Building your dream home from the ground up can be an exciting yet challenging journey, especially in a competitive housing market where existing homes are scarce or overpriced.
A construction loan might have been the perfect solution to bring your vision to life, offering short-term funding to cover land and building costs. But now that your home is complete, you’re likely facing the next big step—converting that temporary financing into a long-term mortgage with better terms.
Thankfully, refinancing a construction loan into a permanent mortgage, or “end loan”, isn’t as complicated as it might seem. Once your property is move-in ready, you can transition into a more stable loan through conventional or government-backed programs. This guide will walk you through everything you need to know about refinancing your construction loan, whether you’re looking for a lower interest rate, a more manageable repayment schedule, or a way to pay off other construction-related financing.
- Homeowners can refinance a construction loan into a conventional or government-backed mortgage once their home is complete.
- Construction-only loans require refinancing, while construction-to-permanent loans convert automatically, though refinancing can still be beneficial.
- Refinancing can help secure a lower rate, adjust the loan term, or pay off alternative financing, but borrowers should weigh closing costs before proceeding.
Types of Construction Loans
The two most common types of construction loans for residential properties are:
- Construction-Only Loans
- Construction-to-Permanent Loans
Construction-only loans are short-term financing that helps cover the costs of purchasing property and building your home. These loans typically have terms ranging from six months to two years and only require you to pay the monthly interest costs until the mortgage matures.
Once your home is complete, you must repay the construction loan in full. This is usually accomplished by refinancing into a regular mortgage. This can be done using the same lender or with a new one.
Construction-to-permanent loans are a complete financing solution that allows you to buy property and build your home. Once the work is finished, the loan converts into a long-term mortgage with the same lender. The terms of a construction-to-permanent loan are negotiated before the building begins, although borrowers may have the option to lock in their interest rate upfront or accept the going market rate once the property is move-in ready.
More specific types of construction loans include:
- Owner-builder construction loans: These loans are for borrowers who act as their own contractors. They can be construction-only loans or construction-to-permanent loans.
- Renovation loan: These loans are for fixer-uppers that the borrower plans to renovate. The loans cover the cost of the purchase and the planned renovations.
Refinancing a Construction-Only Loan
If you have a construction-only loan, it will need to be refinanced (or otherwise paid off) by the time the note comes due. This is generally within two years of closing and sometimes much sooner. Refinancing is a necessity with this type of construction loan unless you have other ways to pay off the balance in full.
However, the refinancing process should be pretty straightforward once your property is complete. Lender criteria for construction loans are typically higher than for the refinance of a completed property, meaning that if your credit and finances haven’t substantially changed, you should likely qualify for a new mortgage.
Refinancing a Construction-to-Permanent Loan
On the other hand, construction-to-permanent loans do not have the same sense of urgency regarding refinancing. Your mortgage will convert into a permanent loan once construction is complete. Even if you don’t have the best interest rate or terms, you won’t need to worry about your balance coming due if it takes a little while to find the ideal refinance.
Like construction-only loans, refinancing a construction-to-permanent loan with a different lender should be simple once you complete and move into your new home.
Refinancing a Renovation Loan
Refinancing a renovation loan is typically straightforward once all work is completed and documented. However, lenders will require an updated appraisal to confirm the home’s new value.
If renovations increase the home’s value, borrowers may qualify for better loan terms or even remove mortgage insurance. But if costs exceed the home’s appreciation, refinancing may be more difficult due to a high loan-to-value (LTV) ratio.
Borrowers should ensure all work is finalized and approved before applying for a refinance to avoid delays or appraisal issues.
Refinancing HELOCs or Other Loans Used for Construction
If you financed construction with a HELOC, home equity loan, cash-out refinance, or an unsecured loan, like a personal loan, you may be able to refinance into a permanent mortgage. However, if these loans were not directly tied to the property under construction, you may need a cash-out refinance to consolidate them.
Cash-out refinances often require higher credit scores, more home equity, and higher interest rates, so compare options before deciding.
What Types of Lenders Refinance Construction Loans?
Government-backed construction loans, like ones from the FHA, VA, or USDA, can be hard to find. Therefore, most construction loans are conventional.
Therefore, most borrowers who refinance their construction loans opt for a conventional mortgage. Conventional lenders offer construction loan refis for up to 95% of the property’s value to homeowners with a 620 credit score. However, as long as your new property is owner-occupied, you have some additional options to consider.
FHA Permanent Mortgages
FHA lenders can refinance your construction loan for up to 97.75% of your home’s value with a credit score of just 580, although most lenders set higher minimums, often around 600 – 620. For example, Refi.com requires a minimum 620 FICO score for FHA refinances.
VA Permanent Mortgages
Homeowners who qualify for a certificate of eligibility from the U.S. Department of Veterans Affairs can apply to refinance their construction loan into a permanent VA mortgage.
VA guidelines allow you to refinance for up to 100% of your home’s value, although this can vary by lender. If you owe less on your construction loan than the property is worth, you may be able to take out cash at closing.
Lender requirements can vary, but you’ll typically need a credit score ranging from 580 to 620. Certain mortgage companies may prefer higher.
USDA Permanent Mortgages
The USDA does not allow you to refinance construction loans from other loan types into their program. However, they do offer single-close USDA construction loans that convert into permanent mortgages upon completion. If you’re working with a USDA construction-to-permanent lender, you can get a USDA streamlined refinance once you’ve had your end loan for at least 12 months.
How Interest Rates Work on Construction Loans and Refinancing
Interest rates on construction loans are typically higher than those for standard mortgages because of the short-term nature and lender risk. However, how and when your rate is set depends on the loan type:
- Construction-Only Loans – These loans often have variable interest rates that fluctuate during the build. When refinancing into a permanent mortgage, you’ll secure a new interest rate based on market conditions at that time.
- Construction-to-Permanent Loans – Some lenders allow borrowers to lock in a fixed rate upfront, while others wait until construction is complete. If rates drop during the build, you may have options to re-lock or refinance for a better deal.
- Owner-Builder Loans & Jumbo Loans – Often come with higher rates and stricter terms due to increased lender risk.
- Government-Backed Construction Loans (FHA, VA, USDA) – Typically offer competitive rates but may have mortgage insurance or funding fees that impact overall costs.
Refinancing Considerations
Your refinance rate and terms will ultimately depend on four key factors:
- Market conditions at the time of refinance
- Your credit score and financial profile
- Loan type (conventional, FHA, VA, etc.)
- Down payment or equity in the home
Borrowers looking to optimize their interest rate should shop around, consider a float-down option (if available), and weigh the costs of refinancing against potential savings.
How we source rates and rate trends
Rates based on market averages as of Dec 02, 2025.Product Rate APR 30-year Fixed Refinance 6.35% 6.37% 30-year Fixed Fha Refinance 5.56% 6.77% 30-year Fixed Va Refinance 5.68% 5.82% 30-year Fixed Usda Refinance 5.56% 5.70%
Why Refinance a Construction Loan?
Are you thinking about refinancing your construction loan? In many cases, it could be a smart move. Sometimes, it’s even a necessity.
Just a few reasons why you might choose to refinance a construction loan include:
- You have a construction-only loan with a brief term
- Other lenders are offering lower rates than your construction-to-permanent loan
- You would like to shorten or lengthen your repayment schedule
- You want to switch between fixed and adjustable-rate mortgages
- You need to repay alternative financing, such as a HELOC on another property
Disadvantages of Refinancing Your Construction Loan
In most cases, the biggest disadvantage of refinancing your construction loan is paying for closing costs twice. If you built your home with a construction-only loan, you may have no choice but to refinance. Borrowers with construction-to-permanent loans, however, should weigh any potential savings against the added closing costs they’d incur.
Refinancing your construction loan also means requalifying for a mortgage. The good news is that construction financing generally has more stringent requirements than conventional or government-backed end loans. As such, most borrowers who qualify for a construction mortgage and haven’t seen a substantial change in their credit score or financial situation should have little issue with their refinance.
Finally, there’s the overall effort required to put together all of the necessary documents, shop around with multiple lenders, and go through the complete loan underwriting process. While it’s likely worth refinancing to slash your monthly payments, some people may find that a small monthly savings – especially when coupled with additional closing costs – simply isn’t worth the trouble.
5 Tips & Tricks for Refinancing a Construction Loan
If you’re considering refinancing your construction loan, here are five tips and tricks for getting the best deal and smoothest refinance possible.
1. Lock in or Float Down
If you have a construction-to-permanent loan and haven’t finalized your mortgage rate, check if your lender allows rate locks or a float-down option. Locking in protects against rising rates, while float-downs let you take advantage of lower rates before finalizing your loan. Some lenders offer a free one-time float-down, while others charge a small fee.
How we source rates and rate trends
Rates based on market averages as of Dec 02, 2025.Product Rate APR 15-year Fixed Refinance 5.37% 5.42% 30-year Fixed Refinance 6.35% 6.37%
2. Consider a Streamline Refinance If You’re Eligible
Do you have a government-backed construction-to-permanent loan? If so, you may want to hold off on your refinance. The FHA, VA, and USDA all offer streamline refinance options once you’ve had your end loan for around seven (FHA & VA) or twelve (USDA) months.
These low-doc refis let you lower your interest and adjust the terms of your mortgage without going through a detailed credit check, verifying your income, or completing a home appraisal.
3. Shop Around for the Best Refinance Deal
The single best way to get a great deal when refinancing a construction loan is often to just shop around with multiple lenders. Receiving loan estimates from at least three companies ensures you’re being offered a fair rate and reasonable closing costs.
You can also use competing quotes to get lenders to fight for your business by providing their best possible offer.
4. Wait Until Your Home Is Fully Complete
If you’re trying to refinance a construction loan into another construction loan in the middle of work being done, you’ll likely have difficulty finding a lender willing to take on the mortgage. It may be possible to do so in some situations, but in most cases, you’re probably better off waiting until the home is built to refinance.
Discover Your Options for Refinancing Your Construction Loan
If you have a construction loan coming due or about to convert into a permanent mortgage, you may be able to refinance it into a regular loan with better terms and lower payments. With enough equity in your new home, you might not even have to pay for mortgage insurance, which can save hundreds a month in some scenarios.
Contact us today to discover your options for refinancing your construction loan, including whether you qualify to cash out any of your existing equity at closing.
