A construction to permanent loan is one mortgage that funds your build in stages and then converts to a standard long-term mortgage when the home is finished, so you qualify and close once. The payment you see in a quote is only part of the picture, though. During the build you pay interest only on money drawn so far, property tax can jump after reassessment, and mortgage insurance may apply if you put less than 20% down. I walk through each of those costs below with a full worksheet, and you can start with a soft credit pull mortgage review that doesn’t touch your score.
By Duane Buziak, NMLS #1110647 | Coast2Coast Mortgage LLC, NMLS #376205
How a Construction to Permanent Loan Moves From Build to Mortgage
The defining feature is the single close. You submit one application, pay one set of closing costs, and make one rate-lock decision. With a two-close approach, you take a construction loan first, then apply again for a separate mortgage when the house is done, with a second approval, a second appraisal, and a second round of fees. If you want a closer comparison, see our breakdown of construction loan vs traditional mortgage financing.
The timeline generally runs like this:
- You secure the land (or already own it) and get the plans, specifications, and builder contract approved.
- You close on the loan. The build phase begins.
- Funds are released in draws as work is completed and inspected. Builds commonly run about 9 to 12 months, but confirm the allowed construction period with your specific program.
- When the local authority issues a certificate of occupancy, the loan converts to the permanent mortgage, typically without a new application.
During construction you make interest-only payments, and only on the balance drawn so far. Early on the payment is small because little has been disbursed. As framing, mechanicals, and finishes are funded, the drawn balance climbs and so does the payment. This is the most common misunderstanding I hear: you are not paying full principal and interest on the whole loan while the house is still a slab and studs.
Two gatekeepers matter before any money moves. The builder must be approved by the program, which usually means a review of licensing, insurance, and track record. And the appraisal is an as-completed appraisal: the appraiser estimates what the finished home will be worth based on the plans and specs, and that value drives your loan-to-value ratio (LTV), the loan amount divided by value.
Qualifying Requirements: Credit, Down Payment, Land, and Builder Approval
Guidelines vary by program and change over time, so treat the following as typical, not fixed. As of October 2026, conventional construction-to-permanent loans often ask for a larger down payment and a stronger credit profile than a standard purchase, because the broker is funding something that doesn’t yet exist. Confirm current minimum scores, down payment, and reserve requirements for the specific program before you commit to a plan. Our guide to getting a mortgage for a new construction home covers the step-by-step process for Virginia buyers.
If you already own the lot, its equity can often count toward the down payment. Suppose, as an illustration, you own a lot worth $90,000 free and clear, and the finished home is projected to appraise at $450,000. Your lot equity is 20% of the as-completed value, which may satisfy the down payment without new cash, subject to program rules and how the land was acquired.
Expect to provide:
- A signed builder contract
- Complete plans and specifications
- An itemized construction budget
- The builder’s license and proof of insurance
- A contingency reserve, either in the budget or in cash
Government-backed one-time-close options may exist through FHA, USDA, or VA-participating programs, each with its own limits. Check current details at HUD.gov and VA.gov.
As a broker, Duane Buziak shops hundreds of lenders at one time, which matters here because construction-to-perm appetite differs a lot from one source to the next. He uses NoTouch Credit Pull for a no hard inquiry mortgage pre approval, so you can see where you stand without a score drop. Whether a Vantage Score 4.0 applies depends on the program, so ask rather than assume. You can also read about safe mortgage prequalification to see how shopping without a credit hit works.
Total Cost of Ownership Worksheet for a Newly Built Home
Every figure below is illustrative, not a rate quote or an offer. Assume a $450,000 as-completed home in Henrico County, Virginia, 10% down ($45,000), a $405,000 loan, a 30-year permanent term, and an assumed 6.75% rate.
Permanent-phase monthly cost
- Principal and interest: about $2,627 per month on $405,000 at 6.75% over 360 months.
- Property tax: I assume $0.85 per $100 of assessed value for illustration. $450,000 ÷ 100 × $0.85 = $3,825 per year, or about $319 per month. This is an assumption, not the current rate. Pull the actual figure from the Henrico County real estate assessments page and note its as-of date before you budget.
- Homeowners insurance: assumed $1,800 per year, about $150 per month.
- PMI: assumed at 0.55% of the loan per year, $2,228 annually, about $186 per month. This is an assumption, and your actual cost depends on credit and program.
- HOA: $0 in this example. Add your dues if the community has them.
- Total estimated monthly cost: about $3,282.
Construction-phase interest
Suppose the build takes 10 months and the drawn balance averages half the loan, $202,500. Interest is $202,500 × 6.75% × 10/12 = about $11,391 over the build. The monthly payment starts near zero and ends near $2,278 (the full $405,000 × 6.75% ÷ 12). Real draws are uneven, and your down payment is usually spent first, so actual figures will differ. Ask for a draw-by-draw projection. For a broader look at how these line items show up on paper, see our mortgage loan estimate breakdown.
The reassessment trap
During the build, the county may tax you on the land and partial improvements. After completion, the home is reassessed at full value, and the first full-year bill can be noticeably higher than what you paid while building. Ask the assessor’s office how and when new construction is added to the roll, and budget for the full-value tax from the day you move in.
PMI on a Construction to Permanent Loan and When It Can Be Removed
PMI generally applies on conventional loans with less than 20% down. On a construction-phase loan it usually doesn’t start until conversion, but confirm that with the specific program. If you’re weighing a way around it, a piggyback loan second mortgage is one PMI-avoidance strategy worth comparing.
Using the same illustration: a $450,000 value with 10% down gives a $405,000 loan. The 80% LTV target is $360,000, so you need to pay the balance down by $45,000. At 6.75% on a 30-year schedule with a $2,627 payment, the balance reaches $360,000 after roughly 98 months, about 8 years. The 78% threshold ($351,000) arrives around month 112, roughly 9 years and 4 months. At the assumed $186 per month, PMI would cost about $18,000 to $21,000 over those years if you never accelerated payments.
The conventional rules to verify against Fannie Mae and the CFPB:
- You can request removal when the balance reaches 80% of the home’s original value, typically with a good payment history.
- PMI terminates automatically at 78% of original value on the scheduled amortization, if you’re current.
- If the home appreciates, a new appraisal may let you request removal sooner. If it reappraised at $500,000, 80% is $400,000, and you would reach that in about 14 months of payments. Servicers often impose minimum seasoning periods and appraisal requirements, so ask yours.
Construction to Permanent Loan vs. Other Ways to Finance a Build
Here is how the main paths compare on the points that matter most. For a wider view of the options, see how to finance new construction in Virginia and our overview of construction loans.
- Construction to permanent (one close). One closing, one set of closing costs. The rate may be locked at closing or set later, depending on the program. Rate-rise risk is lower if locked. Switching providers mid-build is hard. Best for buyers who want certainty and a single approval.
- Standalone construction loan plus separate mortgage (two closes). Two closings and two sets of fees. The permanent rate is set near completion, so you carry full rate-rise risk during the build. You can shop for the mortgage at the end, but you must requalify, and a job or credit change could hurt. Best for buyers who expect rates to fall or who want to pick a different mortgage later.
- Renovation loan. One closing, based on after-improvement value of an existing home. It suits major remodels and some teardown scenarios, not ground-up builds on bare land.
- Buying a completed spec home. One standard mortgage closing with a short lock window, no draws, and no overrun risk, but you give up customization. Best for buyers who value speed and predictability.
I can’t verify current construction offerings for Rocket, Movement, or Veterans United to a standard worth printing, so check each company’s site directly if you want to compare. Don’t assume a large online mortgage company offers one-close construction financing at all.
On a long build, a float-down or lock-extension option can matter. A float-down lets you take a lower rate if the market improves, while an extension covers you if the build runs past the lock period. Both usually cost something. The broker-versus-single-bank distinction applies here: a single institution offers only its own construction product, while a broker can compare many programs and their lock terms side by side.
Common Mistakes and Budget Risks to Plan For
Underestimating overruns. It’s general industry practice to hold a contingency reserve of roughly 10% to 15% of the construction budget, not a sourced statistic, so adjust for your plans. Change orders matter because they can require a budget amendment, and the extra cost may need to come from your cash, not from the loan.
Choosing the wrong builder. A builder who isn’t approved by the program, or who carries thin insurance, can stall your closing or your draws. Have the builder start the approval paperwork before you sign anything final.
Ignoring the overlap. If your current home sells before the new one is livable, you need rent or temporary housing. If the build runs late, a lock extension adds cost. Put both in the budget, with a cushion of a few months.
Assuming the rate is locked. Some programs lock the permanent rate at closing, others let it float until conversion or allow a one-time float-down. Ask directly: Is my final rate locked, and what does it cost if the build runs long? The answer changes how much rate risk you carry. It also helps to know how your credit score affects mortgage rates before you lock anything in.
Ten Questions Builders and Lot Owners Ask
How does a construction to permanent loan work?
One loan funds the build through inspected draws, with interest-only payments on the drawn amount. When the home is complete and occupancy is granted, it converts to a standard mortgage with no second closing.
What does a construction to permanent loan cost?
You pay closing costs once, interest on drawn funds during the build, then full principal, interest, taxes, insurance, and any PMI after conversion. The worksheet above shows how those pieces add up.
Is a construction to permanent loan better than a two-close loan?
It is simpler and usually cheaper in fees, and it can reduce rate risk. A two-close loan can suit buyers who want to shop for a mortgage at the end, but they take on requalification and rate risk.
Do I pay full mortgage payments while the house is being built?
No. Payments are typically interest-only on the funds drawn so far, so they rise as the build progresses.
How much down payment do I need to build a house?
It varies by program, and requirements are often higher than for a standard purchase. Confirm current guidelines as of October 2026, and ask whether land equity can count. If you’re exploring low-cash options, read about a zero down payment loan in Virginia.
Can I use land I already own as my down payment?
Often yes, subject to program rules. Equity in a lot owned free and clear can count toward the required down payment.
Can I pick my own builder?
Yes, but the builder must be approved by the program, with proper licensing and insurance.
Will checking my options hurt my credit?
Not with Duane Buziak. NoTouch Credit Pull provides a mortgage pre approval without a hard pull, so there’s no impact on your score at the review stage.
When can I remove PMI on a new construction loan?
On conventional loans you can generally request removal at 80% of original value and it ends automatically at 78%. In our illustration that is about 8 years and 9 years 4 months, sooner with extra payments or appreciation.
Will my property taxes go up after the house is finished?
Often, yes. The county may tax only land and partial improvements during the build, then reassess at full value. Check with the county assessor for how it handles new construction.
Budget the Whole Home Before You Break Ground
One-close financing removes a second approval and a second set of fees, but it doesn’t change what the house costs to own. The loans that go wrong are the ones sized to a payment and not to the full picture: draw-period interest, a tax reassessment, PMI, and a contingency for the overruns that nearly every build sees. Run those numbers first, then choose the structure.
Ready to find your best mortgage rate from hundreds of lenders without impacting your credit score? Get your free no-touch pre-qualification today and discover exactly what you qualify for with personalized guidance from a trusted mortgage expert. Better Mortgage Rates by Duane Buziak can walk you through a no credit hit mortgage application review and a full cost worksheet for your build.
