How does a construction-to-permanent loan work?
The lender approves you, the builder, the plans and the budget before closing. At closing, the loan pays for the land (if you're buying it) and sets up a draw schedule. As the builder completes stages — foundation, framing, mechanicals, finish — an inspector confirms the work and the lender releases the next draw.
When the home receives its certificate of occupancy, the loan converts to a permanent mortgage and regular principal-and-interest payments begin.
One-time close vs. two-time close
| One-time close | Two-time close | |
|---|---|---|
| Applications | One | Two |
| Closing costs | One set | Two sets |
| Rate risk during build | Rate usually set up front | Mortgage rate set later |
| Flexibility | Locked to one lender | Can shop the mortgage after the build |
What do you need to qualify?
- A licensed, insured builder the lender approves.
- Plans, specifications and a fixed-price construction contract.
- An appraisal based on the plans (the 'as-completed' value).
- Credit and down payment that meet the program — e.g. 3.5% for FHA, 0% for eligible VA or USDA borrowers, 3%–5% for many conventional loans.
- Cash reserves for cost overruns, which lenders may require.
Frequently asked questions
Sources
- Fannie Mae Selling Guide (B5-3.1, Construction-to-Permanent Financing; B3-4.1, Interested Party Contributions)
- Freddie Mac Single-Family Seller/Servicer Guide
- HUD Single Family Housing Policy Handbook 4000.1
- VA — VA-backed purchase loans
- USDA Rural Development — Single Family Housing Guaranteed Loan Program
Data last updated October 24, 2026.
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Figures on this page are estimates for educational purposes only and are not a loan offer or commitment to lend. Rates, loan limits, fees and assistance programs change frequently and vary by lender, location and borrower profile. Confirm current terms with a licensed loan officer.