Getting a HELOC During Home Construction: What You Need to Know

Home construction creates a unique financing challenge. Your property value is in flux, the home isn't habitable yet, and traditional lending rules don't quite fit. If you're wondering whether you can tap into your construction project's equity with a HELOC, the answer is complicated—but not impossible.

Why Standard HELOCs Don't Work During Active Construction

Most lenders won't approve a standard HELOC on a property under active construction. Here's why:

Appraisal complications: Lenders base HELOC approval on current market value. An unfinished home is difficult to appraise accurately since comparable sales assume finished properties.

Collateral risk: Until construction completes, the lender can't be certain of the final value. Cost overruns, project delays, or incomplete work could leave them with inadequate collateral.

Occupancy requirements: Most HELOCs require the property to be your primary residence, which means you need to be living there. You can't occupy a construction site.

Title and lien position concerns: Construction typically involves a [construction loan](/blog/construction-loan-guide) in first position. Adding a HELOC creates lien priority complications.

When a HELOC Might Be Possible During Construction

Despite these obstacles, certain scenarios allow for HELOC access:

1. Construction on Owned Land

If you already own the land free and clear (or with substantial equity), some lenders will provide a HELOC secured by the land itself—not the future home. This works best when:

Land is already titled in your name with no construction loan
Land value alone supports the desired HELOC amount
Property has utilities, road access, and buildable permits in place
You can demonstrate ability to complete construction through other financing

Expect lenders to be conservative with loan-to-value ratios—typically capping at 50-65% of land value, not the anticipated completed value.

2. Renovation of an Existing Structure

If you're substantially renovating rather than building from scratch, HELOC options improve. Key differences:

The structure already exists and can be appraised in current condition
You may be able to occupy portions of the home during renovation
Some lenders offer renovation HELOCs that release funds in stages as work completes

Renovation HELOCs typically require:

Licensed contractor with detailed scope of work
Fixed timeline (usually 6-12 months maximum)
Holdback provisions—lender keeps 10-20% until final inspection
Proof that remaining funds cover completion

3. After Construction Loan Conversion

Many borrowers wait until their construction loan converts to a permanent mortgage, then apply for a HELOC. This is often the cleanest path:

Timeline: Construction loan → Permanent mortgage (usually 6-12 months after completion) → [HELOC application](/blog/heloc-application-process-step-by-step)

Advantages:

Home has final appraisal at completed value
You're living in the property (occupancy requirement met)
Clear title and lien priority
Standard [HELOC underwriting](/blog/heloc-application-mistakes) applies

Waiting period: Most lenders require 6-12 months of payment history on the permanent mortgage before approving a HELOC. Some [portfolio lenders](/blog/portfolio-lending-guide) waive this for strong borrowers.

Alternative Financing During Construction

If you need access to equity-like funding during the build, consider these alternatives:

Construction-to-Permanent Loans with Built-In Flexibility

Some lenders offer construction loans that convert to mortgages with built-in equity access features:

Higher initial loan amount: Borrow more than construction costs, using the difference for contingencies
Delayed funding provisions: Not all funds disburse immediately; some remain available as needed
Built-in HELOC component: A few specialized lenders offer construction products that automatically include a HELOC line after conversion

Traditional Construction Loans with Contingency Reserves

Most construction loans disburse in stages (draws) as work progresses. You can structure these to include:

10-20% contingency fund for overruns
Furniture/landscaping allowances
Funds held for post-completion improvements

While not a HELOC, this provides some financial flexibility during the build.

Personal Lines of Credit

For smaller funding needs during construction, a personal line of credit or business line (if you own a business) can bridge gaps:

No collateral required (typically unsecured)
Higher interest rates than HELOCs
Lower credit limits ($25,000-$100,000 typically)
Fast approval if credit is strong

Bridge Loans

If you're building a new home while still owning your current home, a bridge loan can provide liquidity:

Secured by your existing home's equity
Short-term (6-12 months)
Higher rates than HELOCs but faster approval
Converts or pays off when current home sells

Lender Requirements for Construction-Related HELOCs

If you find a lender willing to work with construction scenarios, expect heightened scrutiny:

Documentation Requirements

Complete building plans and permits
Licensed contractor information and insurance certificates
Detailed budget with line-item costs
Timeline with milestone dates
Proof of primary construction financing (if applicable)
Current land appraisal or [property valuation](/blog/cap-rate-explained-real-estate-investors)
Higher credit score requirements (typically 700+)

Underwriting Considerations

Loan-to-value limits: Expect maximum 60-70% LTV based on current state, not projected value. If land is worth $200,000, maximum HELOC might be $120,000-$140,000 even if completed home will be worth $500,000.

[Debt-to-income ratio](/blog/dti-ratio-explained): Lenders will count both construction loan payments (if applicable) and projected HELOC payments when calculating DTI. Maximum typically 43%, sometimes lower.

Cash reserves: Many lenders require 6-12 months of reserves covering both construction loan and HELOC payments.

Specialty Lenders vs. Traditional Banks

Credit unions and community banks: Often more flexible with construction scenarios, especially if you have existing relationships. May consider unique situations that big banks automatically decline.

Portfolio lenders: Keep loans on their own books rather than selling them, allowing more flexibility with non-standard situations.

National banks: Typically have strict policies against construction-phase HELOCs due to secondary market requirements. Wells Fargo, Bank of America, and Chase rarely make exceptions.

Strategic Timing: When to Apply

The timing of your HELOC application relative to construction stages matters significantly:

Pre-Construction (Land Only)

Best for: Securing funds before breaking ground to cover budget overruns or design changes.

Challenges: Most conservative LTV ratios; many lenders decline outright.

Success factors: Substantial land equity, high credit scores (740+), significant cash reserves.

Mid-Construction

Generally not viable: This is the worst time to apply. Property is in transition, value uncertain, and lenders most risk-averse.

Exception: If you need to switch strategies or access land equity for unexpected issues, specialized bridge lenders may help at premium rates.

Post-Construction, Pre-Occupancy

Increasingly viable: Once construction is substantially complete (certificate of occupancy issued), some lenders will proceed with appraisal based on finished value.

Timing benefit: You may not need to wait for the full seasoning period if you can document completion and move in quickly.

Post-Occupancy (Ideal)

Standard underwriting: Once you've lived in the completed home for 6-12 months with a permanent mortgage, traditional HELOC approval processes apply.

Best rates and terms: You'll qualify for competitive rates and higher LTV ratios (up to 85-90% CLTV).

Tax Implications and Deductibility

HELOC interest deductibility depends on fund usage, which gets complicated during construction:

Qualified residence interest: HELOC interest is potentially deductible if funds are used to "buy, build, or substantially improve" the property securing the loan.

Construction scenario nuances:

HELOC on land to fund construction of your primary residence: Likely deductible
HELOC on existing home to fund new construction elsewhere: Deductibility depends on which property you designate as primary residence
HELOC for construction contingencies or overruns: Deductible if tied to the construction project

Documentation requirements: Keep detailed records showing HELOC funds went directly to construction expenses. Commingling with personal expenses jeopardizes deductibility.

Alternative Minimum Tax (AMT): Even deductible interest may not provide tax benefits if you're subject to AMT. Consult a tax professional for construction scenarios.

Real-World Example: Making It Work

Scenario: Sarah owns 5 acres of land worth $250,000 (purchased years ago, fully paid off). She's building a $600,000 home with a construction loan covering $500,000. She wants a [HELOC for landscaping](/blog/heloc-for-landscaping), furniture, and contingency funds.

Approach:

Applied for a $125,000 HELOC secured by the land (50% LTV)
Found a local credit union willing to structure this as a second lien behind the construction loan
Credit union required:
- Full construction plans and budget
- Personal guarantee
- 720+ credit score (she had 750)
- Proof of $80,000 in cash reserves
- Construction loan documentation showing $100,000 personal equity contribution
Approval terms:
- $100,000 HELOC (credit union reduced amount)
- 2% higher interest rate than standard HELOCs
- Draw period limited to 18 months (vs. typical 10 years)
- Subordination agreement with construction lender
- Automatic review and potential increase once construction completes

Outcome: Sarah accessed needed funds during construction, then refinanced the HELOC after moving in to get better terms and increased limit.

Common Mistakes to Avoid

1. Applying to the wrong lenders: Don't waste time with big national banks. Start with local lenders, credit unions, and portfolio lenders who can customize solutions.

2. Misrepresenting occupancy: Never claim you're living in an unfinished home to meet occupancy requirements. This is mortgage fraud.

3. Overleveraging: Just because you can get a HELOC doesn't mean you should maximize it. Construction often runs over budget—maintain financial cushion.

4. Ignoring subordination issues: If you have a construction loan, the HELOC lender needs subordination agreements. Failure to coordinate with your construction lender can delay or kill the HELOC.

5. Assuming projected value: Lenders don't care that your home will be worth $800,000 when finished. They lend based on current value. Manage expectations accordingly.

FAQ

Can I get a HELOC if I'm building a home from scratch?

Not during active construction in most cases. A few specialty lenders may offer a HELOC secured by your land if you own it free and clear, but expect low LTV ratios (50-65%) based on land value only. The better approach is waiting until construction completes and you've moved in, then applying for a standard HELOC.

What if I'm doing an owner-builder construction project?

Owner-builder projects are even more challenging. Most lenders require a licensed general contractor. If you're your own GC, you'll likely need to wait until after completion and occupancy, then apply through standard channels. Some credit unions make exceptions for members with construction experience and substantial equity.

How long after construction finishes do I have to wait to get a HELOC?

Most lenders require 6-12 months of payment history on your permanent mortgage. Some portfolio lenders waive this for borrowers with excellent credit (740+), substantial equity (70%+ in the home), and strong income documentation. Expect to provide a final appraisal showing completed value.

Can I use a HELOC on my current home to fund construction of a new home?

Yes, this is much easier than getting a HELOC on the construction property itself. If you have equity in your current primary residence, you can get a standard HELOC and use the funds however you want—including funding new construction. Just be aware of tax deductibility implications if the HELOC isn't secured by the property being built.

What's the difference between a construction loan and a HELOC?

Construction loans are specifically designed for building projects. They disburse in stages as work progresses, convert to permanent mortgages upon completion, and base approval on projected finished value. HELOCs are revolving lines of credit secured by existing equity in finished properties. They're different tools for different purposes, though some specialized lenders offer hybrid products.

Will getting a HELOC during construction affect my construction loan?

It can. Your construction lender needs to approve any additional liens against the property (subordination agreement). Many construction loans include clauses prohibiting additional debt during the build. Check your construction loan documents and discuss with your lender before applying for a HELOC.

What if construction costs more than expected and I need more money mid-project?

This is exactly when a HELOC would be helpful but is hardest to get. Options include: requesting a construction loan modification to increase the amount, using personal loans or lines of credit, negotiating payment terms with your contractor, or tapping equity in other properties. Prevention is best—build a 15-20% contingency into your original construction budget.

Can I get a HELOC on a teardown/rebuild property?

It depends on the sequence. If you buy a teardown, demolish it, and immediately start building, you're in the same position as new construction—difficult to get a HELOC mid-project. If you buy the teardown, get a HELOC before demolition (based on the existing structure's value), then proceed with the rebuild, that can work—but your HELOC will be based on the old property's value, not the new construction.

Bridge Loans Explained: How They Work, What They Cost, and When They're Worth It
Construction Loan Guide 2026: How to Finance Building Your Dream Home
[[Home Buying Contingencies](/blog/contingencies-explained) Explained: Every Clause You Need to Understand Before Signing](/blog/contingencies-explained)

Heloc During Construction

Key Takeaways