Financing Your Dream Cabin: Understanding Construction Loans

Building your dream cabin is exciting, but financing it can feel overwhelming. If you're considering one of our Custom Cabins (Salmon Run, Eagle's Nest, or Grizzly Track), you should explore a construction loan. At PennWood Cabins, we walk with you through this process, ensuring you feel confident every step of the way. Let's examine what construction loans are and how they work.

What is a Construction Loan?

A construction loan is a short-term loan designed to cover the cost of building a home or cabin from the ground up. Unlike a traditional mortgage, all the money isn't disbursed upfront. Instead, a construction loan is paid out in draws—small installments—throughout the building process. This method allows the lender to release funds as the work is completed, which helps keep the project on track and ensures that the money is used only for verified progress.

🔁 Construction Loan vs. Mortgage: What's the Difference?

Feature	Construction Loan	Traditional Mortgage
Funds	Paid in stages	Paid all at once
Term	6–18 months	15–30 years
Payment	Interest-only during build	Full principal + interest
Purpose	New construction	Existing home purchase

How the Construction Loan Process Works

Here’s a simple overview of what to expect:

1. Pre-Approval

Before construction begins, your lender will review your:

• Credit history and income level

• Building plans and budget

• Approved builder (like us!)

  
  

2. Loan Closing

Once approved, your construction loan will close, and the bank will release the first draw, often 10% or less. This initial amount covers early costs like permits, excavation, and deposits.

3. Draw Schedule

The remaining funds are released in milestone stages (called “draws”) as work is completed and inspected.

A typical 6-draw schedule might look like:

• Excavation & Site Prep

• Foundation & Masonry

• Framing

• Roof, Windows, & Doors

• Interior Systems (plumbing, electric, drywall)

• Final Finishes & Inspection

  
  

Each draw requires approval by an inspector or bank representative to confirm that the phase is complete.

4. Interest-Only During Construction

You’ll pay only interest on the amounts drawn—not the total loan amount.

5. Conversion to Mortgage

Once the cabin is finished, the loan can either be:

• Converted into a traditional mortgage (referred to as a “construction-to-permanent loan”)

• Paid off using another financing source

  
  

Tips for a Smooth Construction Loan Experience

Start Early

Begin by getting pre-approved. Talk with your builder about timelines to avoid issues later.

Stay Organized

Keeping records of quotes, invoices, and inspections can help streamline the process.

Budget Wisely

Material costs can fluctuate, so your lender may require a contingency fund to cover unexpected expenses.

Work With a Trusted Builder

At PennWood Cabins, we have experience with construction loan projects. We can help provide everything your bank requires.

Common Misconceptions About Construction Loans

They're Difficult to Obtain

Many believe that obtaining a construction loan is incredibly challenging. However, with proper planning and documentation, you can secure the financing you need.

They Are Only For Large Projects

Construction loans aren't just for large builds. Whether you're planning a small cabin or a large home, options are available.

You Have to Use the Money Instantly

Some think that once you receive a draw, you must use it right away. In reality, you can use funds according to your project's needs, as long as they align with the draw schedule.

🙋 Ready to Start?

Whether you're just exploring your options or ready to break ground, we're here to assist you. Reach out to request a quote, discuss your property, or connect with lenders we've worked with.

Your cabin dreams are closer than you think.

📞 814-967-2002 | 📧 marketing@pennwoodcabins.com | 📍 Visit PennWoodCabins.com