Thinking about building a custom home in Colorado? First off—congrats! That’s an exciting (and sometimes overwhelming) journey. Before you start sketching floorplans or picking out windows, there’s one thing you need to understand early: how construction loans work.
I’ve been working with custom home clients for years, and I can tell you—construction loans aren’t the same thing as a mortgage, and treating them like one can lead to major headaches.
Let me walk you through it—plain and simple.
Construction Loan vs. Mortgage: What’s the Difference?
Here’s a question I hear all the time:
“Bob, I talked to a mortgage broker. We’re pre-approved. So we’re good, right?”
Well… not quite.
A mortgage helps you buy a house that already exists. A construction loan, on the other hand, gives you the funds to build that house from the ground up.
With a construction loan, you don’t get the money all at once. Instead, your bank gives you access to a kind of big checkbook (we call it a line of credit). They pay out in chunks—called “draws”—as the house progresses. Foundation. Framing. Roofing. And so on.
How Construction Loans Work When Building a Custom Home in Colorado
Every state does things a little differently, and Colorado is no exception. In our market, local banks usually do the best job with construction loans.
Why? Because they know the area. They understand local land rules, weather conditions, even the quirks of mountain builds. More importantly, they’re more likely to work hand-in-hand with your builder.
Here’s how a typical Colorado construction loan works:
- You and the bank agree on a budget.
- The bank holds those funds and pays your builder in stages.
- Many loans include interest reserves, so you’re not making payments during construction.
- You stay in your current home and keep paying that mortgage—no double house payments!
Build Now, Pay Later: A Huge Benefit
One of the biggest advantages of a Colorado construction loan is you don’t start making payments on your new home right away. You can stay in your current house, and in most cases, your bank covers the interest on the construction loan as the house is built. That interest gets added to the total loan, which you’ll refinance later.
So no, you’re not stuck paying two mortgages at once. Big relief, right?
Is a One-Time Close Construction Loan Right for You?
Some Colorado lenders offer a cool tool called a one-time close construction loan. This option rolls your construction loan and your final mortgage into one neat little package. You only close once, and it saves you some fees.
If you’ve got good credit and a solid job history, this could be a great choice—but not every bank offers it. It’s worth asking about.
What Are the Current Construction Loan Interest Rates in Colorado?
Rates change, but generally speaking, construction loan interest rates in Colorado are a little higher than a regular mortgage—usually 0.5% to 1.5% more.
Why the bump? Construction loans are short-term and higher risk for the lender. That said, you’re only paying interest on what you’ve drawn, not the full loan amount.
Your best move? Shop around. I recommend talking to 2 or 3 local banks to compare rates and fees. Don’t be afraid to ask questions—they should be eager to help.
How to Qualify for a Construction Loan in Colorado
Getting a construction loan isn’t complicated—but it does take some prep. Here’s what banks typically look for:
- A solid credit score (680+ is ideal)
- Steady income or job history
- A clear building plan and realistic budget
- A licensed builder like HomeWrights
You might even be able to negotiate fees or interest if you’ve got a strong financial picture.
We Can Help You Get Started
At HomeWrights Custom Homes, we’ve helped hundreds of Colorado families secure the right construction loan—whether they’re doing a turnkey build or acting as their own general contractor through our owner-builder program.
We’re not a lender, but we’ve worked with just about every kind of lender there is—from small-town banks to regional powerhouses. If you want help navigating the options, just reach out here. We’re happy to talk it through—or even introduce you to the right people.
More Resources for Building a Custom Home in Colorado
- Cost to Build a Custom Home in Colorado
- Turnkey vs Owner-Builder: Which Option Is Right for You?
- How to Choose the Right Builder in Colorado
Final Word from Bob
Look, construction loans aren’t something you deal with every day. I get that. That’s why we’re here—to help you ask smarter questions, avoid common missteps, and build your home with confidence.
You’ve got a dream. Let’s help you fund it—without the confusion.
Let’s Build Smart Together
Whether you’re planning a traditional build, using commercial materials, or going modern with a custom container home, HomeWrights Custom Homes can help you build smart—with total control and transparency.
Call: 303-756-8870
We have representatives in Boulder, Colorado Springs, Denver, Fort Collins, and Pueblo areas. We’re happy to meet at your home, our office, or virtually.