How Construction Loans Work: What You Need to Know Before Building Your Cabin

Angela Anthony
2 days ago
2 min read

Building your dream cabin is exciting, but financing your dream can feel a bit overwhelming. If you're looking at building one of our Custom Cabins (Salmon Run, Eagle's Nest, or Grizzly Track), you may wish to explore a construction loan. At PennWood Cabins, we walk alongside you through this process and want you to feel confident every step of the way. Let's take a look at what construction loans are, and how they work.

What is a Construction Loan?

A construction loan is a short-term loan used to cover the cost of building a home or cabin from the ground up. Unlike a traditional mortgage, you do not receive all of the money up front. A construction loan is paid out in draws - small installments - throughout the build. This allows the lender to release funds as the work is completed, keeping the project on track and ensuring the funds are 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 anything is built, your lender will review your:

Credit and income
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 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 rep to confirm that phase is complete.

4. Interest-Only During Construction

You’ll only pay interest on the funds that have been drawn—not the full loan amount.

5. Conversion to Mortgage

Once the cabin is complete, the loan is either:

Converted into a traditional mortgage (called a “construction-to-permanent loan”), or
Paid off by another source of financing

Tips for a Smooth Construction Loan Experience

Start early. Get pre-approved and talk with your builder about timelines.
Stay organized. Keep records of quotes, invoices, and inspections.
Budget wisely. Material costs can fluctuate—your lender may require a contingency fund.
Work with a trusted builder. PennWood Cabins is experienced with construction loan projects and can help provide everything your bank needs.

🙋 Ready to Start?

Whether you're just starting to explore your options or you're ready to break ground, we're here to guide 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