If you own a lot or are buying one, a construction-to-permanent loan can finance the build and the mortgage that follows in a single package. You apply once, close once, and the loan turns into a regular mortgage when the house is finished. The details differ by program, and the lender’s own rules matter as much as the agency’s. This guide walks through what HUD, Fannie Mae, the Department of Veterans Affairs and the Consumer Financial Protection Bureau say on their own pages, so you know what to ask before you sign a builder contract. It gives no rates or prices, because those change and depend on your file.
What a one-time close puts into one loan
Fannie Mae describes its single-closing option as one underwriting and one closing for the construction loan and the permanent financing, with one set of closing documents and a single signing appointment. HUD describes FHA’s version the same way: the loan combines a construction loan with a long-term mortgage under a single closing that takes place before construction starts.
The loan runs in two phases. Fannie Mae’s Selling Guide says the construction loan must be structured as a temporary loan, and that it converts automatically to a permanent mortgage on completion because the loan documents already state the permanent terms. In practice, you are approved for the finished mortgage before the first board is cut, and the construction phase is the period between closing and the conversion.
Not every lender offers the product. VA tells borrowers to find a participating lender with a construction loan product, and our preferred lenders page is a place to start for lenders who work in the Richmond area. If you are still choosing a lot, our guides to buying rural land and building a home near Richmond and what to check on acreage before you build cover the land side.
What the lender wants before you break ground
Expect the lender to want all of this on paper before closing:
- A builder contract. HUD’s letter says an FHA borrower must have contracted with a builder who is a licensed general contractor. A borrower may serve as the general contractor only if the borrower is also licensed as one.
- The land. Under FHA, the borrower either buys the land at the construction loan closing or already owns it.
- Plans and a contractor. VA says a construction loan requires plans and a contractor, and that permits must be confirmed with the local building authority.
- A full borrower file. VA says you will document income, reserves, assets and debts and pass a full credit check. Fannie Mae’s guide says credit documents generally cannot be more than four months old at the note date and again at conversion, with a limited exception for lower loan-to-value loans that receive an approval recommendation from its underwriting system. A long build can mean refreshing paperwork.
- A loan amount tied to cost and value. HUD sets the FHA maximum mortgage from the lesser of the appraised value or the documented acquisition cost.
Builder approval is worth raising early. Before you sign with a builder, ask the lender whether it has its own approval process for builders, and how long that review takes. A builder the lender will not accept can stall the whole loan.
Our guides to buying new construction in Richmond and phase inspections on new construction explain the builder side of that contract.
Get the Richmond closing-timeline checklist
Request our Richmond closing-timeline checklist. It lays out the order of events from contract to keys, so you can match your lender’s construction schedule to your closing dates.
The draw schedule, inspections and who pays the builder
VA describes how the money moves: initial funds go into an escrow draw account that pays the builder at set stages, and the lender needs your written approval before each draw. Fannie Mae’s guide says the lender is responsible for managing the disbursement of loan proceeds, and Fannie Mae says the lender may use a third party to do it.
On the VA side, the guaranty is not issued until VA receives a clear final compliance inspection report. That makes the last inspection a gate on the loan, not just a formality. Questions to put to your lender in writing:
- Who inspects at each stage, and who pays for it?
- How many days pass between an inspection and the builder’s payment?
- What happens if the builder finishes a stage early or falls behind?
- How is interest charged during construction, and when do payments start?
That last question has no answer in the agency pages we read. They do not say whether you pay interest-only during construction, so treat it as a term to get from your lender’s loan agreement and not as an assumption.
Rate lock: what the agency pages say, and what they leave out
Fannie Mae says borrowers in a single-closing loan can lock their permanent interest rate, and that if rates fall during construction the rate can be updated when the loan converts. The page does not give lock lengths, fees or extension terms. HUD’s letter lists the FHA mortgage interest rate rules as part of its construction-to-permanent guidance but does not restate them, so ask your lender how its FHA product handles the rate.
Our guide to rate locks, float-downs and extensions covers the questions to ask about a lock that has to survive a build.
How long the build can take
For a Fannie Mae single-closing loan, the Selling Guide says no single construction period may be longer than 12 months and the total period may not exceed 18 months, and it says exceptions will not be granted. Other lenders and programs set their own limits. Ask what your lender allows, what an extension costs and what happens to the loan if a builder runs past the date.
What happens at conversion
Under the Fannie Mae guide, the lender may modify only the interest rate, loan amount, loan term and amortization type, and the modification has to happen at or before conversion. The only amortization change allowed is from adjustable-rate to fixed-rate. The loan also cannot be sold to Fannie Mae until construction is complete and the loan has converted. The HUD letter we read does not lay out the final FHA conversion steps, so ask your lender for its conversion checklist.
Building near Richmond: where to start
Land-and-build buyers often compare lots across several counties. Our Powhatan County, Goochland County and Hanover County pages are a place to start, and our Richmond homes with acreage and new construction homes searches show what is on the market now. If you want a lender to look at your plan, ask us for an introduction through our contact page.
Ready to plan the timeline? Ask for the closing-timeline checklist
Request our Richmond closing-timeline checklist. It lays out the order of events from contract to keys, so you can match your lender’s construction schedule to your closing dates.
Construction-to-permanent loan questions
Can I act as my own builder on a construction-to-permanent loan?
Under the FHA version, only if you are also a licensed general contractor. HUD’s 2019 letter says the borrower must contract with a builder who is a licensed general contractor, and that a borrower may serve as the general contractor only if the borrower holds that license. Other programs and lenders set their own rules, so ask before you assume.
Can I use land I already own?
FHA allows it. The HUD letter says the borrower must either buy the land at the construction loan closing or already own it. How a lender treats the land you own when it sets your loan amount is a question for the lender, and it affects how much cash you bring.
What happens if construction costs more than planned?
On a Fannie Mae single-closing loan, the guide allows the loan amount to rise only as necessary to cover documented increased costs, and any change to the loan terms has to happen at or before conversion. Anything beyond what the lender will finance is yours to cover. Ask what your lender requires in writing for a change order.
Do I still get a Loan Estimate and Closing Disclosure on a construction loan?
Generally yes. The CFPB guide says most construction loans that are closed-end consumer credit secured by real property fall under the mortgage disclosure rules. For a loan that moves from construction to permanent with the same creditor, the creditor may give one combined set of forms or a separate set for each phase.
How can a house that does not exist yet be appraised?
The lender orders the appraisal before closing, and Fannie Mae’s guide says its effective date must be no more than four months before the note date. When the house is finished, the guide requires the completion form, Form 1004D, to be filled out in full including the certification of completion, and says a new appraisal is required if the appraiser reports a decline in value.
Can I use one lender for the construction loan and a different one for the mortgage?
Yes, through a two-closing structure. Fannie Mae describes an option where a lender rolls an existing construction loan, which can come from any lender, into a permanent mortgage. You close twice, once for each loan, instead of once.
Does a one-time close work for a manufactured or modular home?
Fannie Mae says its single-closing option works for site-built and manufactured homes. Titling and financing rules for manufactured and modular homes have their own steps, which our guide to manufactured and modular home financing and titling in Richmond covers.
