A $450,000 construction-to-permanent loan at 6.50% has an estimated principal-and-interest payment of $2,844 per month after conversion to a 30-year fixed mortgage. At 6.875%, that payment rises to about $2,956 – a $112 monthly difference and $6,720 over the first five years before taxes, insurance, or HOA dues. That is why this construction to permanent loan guide starts with the permanent financing, not just the excitement of selecting cabinets and floor plans.
Construction financing is more than a purchase mortgage with a different label. You are qualifying for the completed home, the building plan, the contractor, the draw schedule, and the possibility that costs or timelines change. A well-structured one-close loan can keep those moving parts under one approval instead of forcing you to refinance after construction.
Duane Buziak, NMLS #1110647, is licensed to originate in Virginia, Florida, Tennessee, and Georgia. He has been recognized by Scotsman Guide as a Top Originator, ranking #114 in 2025 with $44.4 million across 124 loans and reporting $51.2 million in 2026 production.
Table of Contents
- What a construction-to-permanent loan does
- How one-close financing works
- Payment, credit, and reserve requirements
- Local pricing and construction market realities
- Broker rate-shopping versus single-shelf pricing
- Questions to ask before signing a build contract
- Construction-to-permanent loan FAQ
What a construction-to-permanent loan does
A construction-to-permanent loan, often called a one-close loan, begins as financing for the build and converts into the long-term mortgage when the home is complete. During construction, borrowers generally make interest-only payments on the amount that has actually been drawn. When the certificate of occupancy is issued and the project meets program requirements, the loan converts to the permanent loan terms selected at closing.
The alternative is a two-close structure: one loan for construction, then a new mortgage when the house is finished. Two-close financing can make sense when a borrower wants maximum flexibility at conversion or expects substantially improved income, credit, or market rates later. The trade-off is a second approval, a second closing process, and exposure to future pricing.
For national rate context, review the latest weekly 30-year fixed survey from https://www.freddiemac.com/pmms. That survey is a national benchmark, not a personalized quote. Construction pricing depends on credit, down payment, loan size, property type, reserves, lock period, and the approved builder.
How one-close construction financing works
The broker submits a complete package before construction begins. That usually includes your income and asset documentation, land details if you already own the lot, the construction contract, plans, specifications, appraisal, and builder review. The appraisal is based primarily on the proposed finished home, often called the “subject-to-completion” value.
After closing, funds are released in draws as work is completed. An inspection typically supports each draw request. The builder is not handed the entire loan balance on day one, which protects both the borrower and the financing structure.
The permanent payment is based on the final mortgage balance, not the early construction draw balance. If the project needs a change order, the question is not merely whether the builder agrees. You must also know whether contingency funds exist, whether the appraised value supports the revised cost, and whether you can bring additional cash if necessary.
Credit qualification without an early hard inquiry
Early planning should not force a consumer into repeated hard inquiries. A soft credit pull mortgage review can help a broker estimate qualification, payment, and likely program fit without a credit hit. LowerMortgageRates.com offers a NoTouch Credit Pull option for initial planning.
A no hard inquiry mortgage pre approval is not the same as a final underwriting approval. Before closing, the selected mortgage program and broker may require a hard inquiry, refreshed credit report, verification of assets, and confirmation that no new debt has been added. The practical benefit is that you can begin comparing scenarios before committing to a formal application.
For many conventional construction files, a 680 credit score is a useful planning threshold, while stronger pricing is often available at 740 and above. FHA construction options may allow lower scores, but credit, debt-to-income ratio, builder eligibility, and property standards still matter. VA-eligible borrowers may have low-down-payment options, but the builder and project must satisfy the program requirements described at https://www.va.gov/housing-assistance/home-loans/loan-types/construction-loan/.
Construction costs: the numbers that deserve attention
A construction budget should include more than the builder’s base contract. Site work, utility connections, permits, driveway work, upgrades, contingency funds, and interest during construction can materially change the cash needed. Closing costs commonly run about 2% to 5% of the loan amount, although the exact figure depends on prepaid items, title work, points, and local charges. Ask about our no-out-of-pocket closing options when appropriate.
For a $450,000 loan, 2% to 5% is $9,000 to $22,500 before any seller, builder, or broker-negotiated credits. In any closing-cost conversation, factor in that our preferred title company can save an additional $2,000 on average, subject to the transaction and title services required.
Reserves are another frequent surprise. A primary-residence file may require several months of total housing payments in verified reserves, while a jumbo, second-home, or investment scenario can require six to 12 months or more. Self-employed borrowers should expect review of business income, tax returns, and possibly business liquidity. Bank statement and non-QM options can help certain borrowers, but they are not a substitute for a build budget that actually works.
Local market conditions affect your build decision
Building can be a practical answer when resale inventory is thin, but it is not automatically cheaper. In Richmond, Glen Allen, and Short Pump, desirable finished homes can attract competition, while buildable lots may have their own scarcity and utility challenges. Buyers should compare the all-in construction cost with completed homes in the same school, commute, and neighborhood category.
As one local benchmark, Zillow’s Henrico County market page reported a typical home value around $389,900, illustrating why buyers considering a custom build need to watch the gap between existing-home values and their finished-project cost. See the current county data at https://www.zillow.com/home-values/2651/henrico-county-va/. Prices, inventory, and builder schedules change, so the relevant question is whether the completed appraisal supports your exact lot, plan, and upgrades.
The conforming loan limit also matters. The Federal Housing Finance Agency sets annual baseline limits, and higher-cost areas can differ. Confirm the current limit directly at https://www.fhfa.gov/data/conforming-loan-limit before assuming a project fits conventional conforming financing. A loan above the applicable limit may move into jumbo pricing and potentially higher reserve requirements.
Broker rate-shopping versus single-shelf pricing
A broker can compare eligible options across available wholesale investors, while a single-shelf model presents its own product menu. That does not mean every broker quote is lower or every direct quote is higher. It means you should compare the complete Loan Estimate, the lock terms, the construction process, and the service plan.
| Decision point | Broker rate-shopping | Single-shelf pricing |
|---|---|---|
| Available programs | Can compare eligible investor options | Limited to that company’s product shelf |
| Construction fit | Can screen for approved one-close structures | Depends on in-house construction offering |
| Pricing review | Compares rate, points, and credits across options | Compares choices within one pricing system |
| Credit planning | May begin with a soft pull mortgage broker review | Process varies by company and application stage |
| Title-cost planning | Preferred title company may save an additional $2,000 on average | Title-provider options and savings vary |
Compare a broker’s written scenario against any direct mortgage option using the same loan amount, down payment, credit assumptions, lock period, and builder timeline. A lower advertised rate with more points, a shorter lock, or less construction flexibility may not be the lower-cost choice.
Questions to answer before the build contract
Before signing, confirm whether the builder is eligible for the selected program, who controls the draw process, what happens if materials are delayed, and how change orders are funded. Also ask how long the rate can be locked and whether an extension is available. Construction timelines often exceed original estimates, and a rate lock that is too short can become expensive.
Do not add cars, furniture financing, or new credit cards while the project is underway without speaking to your broker first. A mortgage pre approval without hard pull can be a smart first step, but final approval still depends on stable credit, income, assets, and debt through closing.
Construction-to-Permanent Loan FAQ
1. Is one-close construction financing better than two-close financing?
It depends. One-close financing offers one approval and locks the permanent structure earlier. Two-close financing may offer flexibility later but creates a second approval and future-rate risk.
2. Do I make a full mortgage payment while my home is being built?
Usually not. Payments are commonly interest-only on funds drawn during construction. The full principal-and-interest payment begins after conversion.
3. Can I use land I already own?
Often, yes. Existing land equity may count toward your required contribution, subject to appraisal, title, and program rules.
4. What credit score is needed?
A 680 score is a practical conventional planning benchmark, while 740-plus often improves pricing. Requirements vary by program and overall file strength.
5. Can a soft pull protect my credit score?
A soft pull does not create a hard inquiry. It can support early planning, but final underwriting may still require a hard credit report.
6. Are construction loans available to veterans?
Potentially. VA construction financing has specific builder and property requirements, so eligibility should be reviewed before signing a contract.
7. What if the build goes over budget?
You may need contingency funds, a revised appraisal, a lower-cost scope, or additional cash. Do not assume the loan amount automatically increases.
8. Can self-employed buyers qualify?
Yes, if income can be documented under the selected program. Tax returns, bank statements, business records, and reserves may be relevant.
For buyers in Virginia, Florida, Tennessee, or Georgia, the smartest first move is to price the permanent loan, validate the builder, and protect your credit before the build contract turns into a deadline.
Legal disclaimer: This article is educational only and is not a commitment to lend, an offer of credit, legal advice, tax advice, or a guarantee of approval, rates, terms, savings, or closing costs. Loan programs, eligibility, rates, fees, and requirements are subject to change and borrower, property, investor, and state rules. Duane Buziak originates mortgage loans only in Virginia, Florida, Tennessee, and Georgia, where licensed. Verify licensing and current information before making financial decisions.
Duane Buziak | Mortgage Maestro | NMLS #1110647 | Coast2Coast Mortgage, LLC NMLS #376205 | Licensed in VA, FL, TN, GA & DC [Contact] | NoTouch Credit Pull available — no hard inquiry, no credit hit.