Construction Loan vs. HELOC: The 2026 Comparison

Two ways to fund a build. Different draw structures, different rates.

Construction loans are purpose-built for new builds — they release funds in milestone-based draws and convert to a permanent mortgage at completion. HELOCs are lines of credit against existing equity that let the buyer draw as needed.

Why this makes sense right now

Construction loan originations: 380K in 2024 per Attom Data. HELOC: 1.4M. HELOCs dominate on volume because ADU builds and renovations exceed new construction volume 4:1.

The layout — head-to-head

Structure

• Construction loan: short-term, milestone draws
• HELOC: revolving line

Rate 2026

• Construction loan: 7.5%-8.5% during construction, then converts
• HELOC: 8.25%-9.75% variable

Term

• Construction loan: 12-24 months construction + 30-year permanent
• HELOC: 10-year draw + 10-20 year repayment

Underwriting requirements

• Construction loan: contractor bids, plans, schedule, appraisal
• HELOC: primary home appraisal + credit + income

Draws

• Construction loan: milestone-based (foundation, framing, mechanical, finish)
• HELOC: draw as needed by borrower

Closing costs

• Construction loan: $3K-$8K + permanent loan costs
• HELOC: $500-$2,000

Best for

• Construction loan: full new builds
• HELOC: ADU adds, renovations, supplementary

Financing math

$350K new modular home build:

Construction-to-perm at 7.5% construction / 6.5% permanent:

• Construction interest during 8-month build: $17.5K
• Permanent mortgage at completion: $2,215/month for 30 years

HELOC + separate primary mortgage:

• HELOC $350K at 8.75% (interest-only during build): $2,550/month interest
• Not sustainable for a $350K build — HELOCs generally cap under $300K

Construction loan is the only realistic path for a full new build over $200K.

Choose construction loan if...

• Full new build $200K+
• Contractor-managed project
• Want lock in permanent rate at construction start
• Milestone-based draws work for your project

Choose HELOC if...

• ADU addition or renovation under $180K
• Existing primary property with equity
• Want draw flexibility
• Faster close matters

The quiet part.

Construction loans require more work — contractor bids, plans, appraisal of as-completed value, milestone underwriting. That's why brokers pitch HELOCs even for projects that should use construction loans. HELOCs are faster to originate but poorly matched to full new builds.

If the build is over $200K and involves a full contractor, use a construction loan. If it's under $180K and mostly renovation or ADU add-on, HELOC is fine.

Related guides

• HELOC vs. HomeStyle Renovation Comparison (2026)
• HELOC vs. Cash-Out Refi Comparison (2026)
• Cash vs. Financed Modular Home (2026)

The waitlist is open

The Financing Finder sorts build size + existing equity into the right loan structure. Eight questions.

Full build or ADU add. Different projects, different loans. Pick the right structure for the scope.