Construction Loan Financing for Your New Home
Building a home gives you the opportunity to choose the location, floor plan and features that fit your life—but financing new construction is different from purchasing a completed property. Mojave River Mortgage helps California homebuyers compare construction loan financing for custom homes, including one-time-close construction-to-permanent loans. Whether you already own land, need to purchase a homesite or are still selecting a builder, we can help you understand the financing process and prepare for the next step.
What Is a Construction-to-Permanent Loan?
A construction-to-permanent loan provides financing for the construction phase and then becomes long-term mortgage financing after the home is completed and the required conditions are satisfied.
Construction funds are generally held in a controlled account and released to the builder through scheduled draws as work is completed and verified.
Depending on the program, financing may include:
- The purchase of an eligible building lot
- Payoff of qualifying existing land debt
- Construction labor and materials
- Permits and approved professional fees
- Required contingency reserves
- Permanent mortgage financing
- Certain eligible closing costs
The borrower, property, builder, plans, budget and construction contract must satisfy applicable lender and loan-program requirements.
One-Time-Close Construction Financing
A one-time-close construction loan—also called a single-close construction-to-permanent loan—combines construction financing and the permanent mortgage into one transaction.
Potential benefits may include:
- One loan application
- One underwriting process
- One closing
- One set of closing documents
- Fewer duplicated closing expenses
- Permanent financing arranged before construction begins
- No separate mortgage application after construction, provided all requirements are satisfied
A single closing can make the process more convenient, but it does not eliminate inspections, draw administration, builder approval or construction documentation.
One-Time Close vs. Two-Closing Construction Loans
One-Time-Close Loan
With a one-time-close loan, the construction and permanent financing are arranged together before construction begins. After the home is completed and all conditions are satisfied, the loan converts or modifies into its permanent phase according to the program terms.
Two-Closing Loan
A two-closing transaction uses separate loans:
- An interim construction loan to finance the build
- A permanent mortgage obtained after construction is complete
A two-closing structure may provide flexibility, but the borrower may need to qualify again and pay a second set of closing costs. The permanent interest rate may also depend on market conditions when the second loan is obtained.
We can help you compare the qualification requirements, costs and risks of each approach.
Construction Loan Programs
Depending on borrower qualifications, property location, project type and lender availability, construction financing options may include:
Conventional Construction Loans
Conventional construction-to-permanent financing may be available for qualified borrowers building eligible primary residences, second homes or other permitted property types.
Down payment, credit, reserve and loan-to-value requirements depend on the lender and transaction.
FHA Construction Loans
FHA construction-to-permanent financing may offer a reduced down payment for eligible borrowers and projects. FHA mortgage insurance, loan limits, property standards and owner-occupancy requirements apply.
VA Construction Loans
Eligible veterans, active-duty service members and certain surviving spouses may be able to use VA-backed financing to build a primary residence.
VA eligibility does not guarantee that a particular lender, builder or project will qualify. Funding-fee, entitlement, appraisal and occupancy requirements may apply.
Mojave River Mortgage does not charge lender fees on eligible VA loans. Third-party costs, discount points and a VA funding fee may still apply unless the borrower qualifies for an exemption.
USDA Single-Close Construction Loans
Qualified borrowers building an eligible primary residence in an approved rural area may have access to USDA single-close construction-to-permanent financing.
Income limits, geographic eligibility, property standards and participating-lender requirements apply.
Not every construction program is available from every lender or for every project.
Can You Build on Land You Already Own?
Potentially. If you already own an eligible lot, its value or available equity may be considered when calculating the transaction, depending on the loan program and how long you have owned the land.
The review may include:
- Current land value
- Existing liens or land loans
- Original acquisition cost
- Length of land ownership
- Property access and utilities
- Zoning and permitted use
- Plans, specifications and construction budget
- Estimated completed value
Do not begin construction before receiving approval and written authorization. Work started before closing can affect eligibility.
How the Construction Loan Process Works
1. Review Your Qualifications and Budget
We begin by reviewing your income, credit, assets, debts, available funds and estimated project cost.
2. Confirm the Land and Builder
The lender evaluates the lot, title, builder, construction contract and proposed use of the property. Builders typically must satisfy licensing, insurance, experience and financial requirements.
3. Submit Plans and Specifications
Provide the architectural plans, material specifications, permits, construction contract, itemized budget and proposed timeline required by the lender.
4. Complete a Subject-to-Completion Appraisal
The appraiser estimates the property’s value as though the home were completed according to the approved plans and specifications.
5. Close the Construction Loan
Once the borrower, builder and project are approved, the loan closes before construction begins. Required borrower funds and construction proceeds are placed under the applicable disbursement controls.
Complete Construction Draws
Funds are released in stages as approved work is completed. Inspections, title updates and draw documentation may be required before each disbursement.
Convert to Permanent Financing
After final completion, required inspections, lien releases and the certificate of occupancy, the loan enters its permanent phase under the program terms.
What Documents May Be Required?
Construction financing generally requires more documentation than financing a completed home.
We will help you become prepared to provide:
- Income and asset documentation
- Credit and debt information
- Land purchase contract or deed
- Existing land-loan statement
- Signed construction contract
- Detailed plans and specifications
- Itemized construction budget
- Builder license and insurance
- Construction schedule
- Building permits
- Explanation of available contingency funds
Requirements vary by loan program, lender, builder and project.
Plan for Construction Risks
Even a well-planned project may experience:
- Material-price increases
- Labor shortages
- Weather delays
- Permit delays
- Change orders
- Inspection issues
- Cost overruns
- Completion-date extensions
A construction loan should include a realistic budget and sufficient reserves. Borrowers may be responsible for costs that exceed the approved loan amount or budget.
Before signing a construction contract, understand how changes, delays, disputes and cost overruns will be handled.
Why Mojave River Mortgage?
Faster
We help identify financing issues before the loan reaches final underwriting and coordinate the documentation needed for the borrower, builder and project review.
Easier
Construction lending has more moving parts than a traditional mortgage. We explain the process, required documentation and next steps in plain language.
Potentially Cheaper
As a wholesale mortgage broker, Mojave River Mortgage can compare available construction programs and pricing from multiple lending sources. A one-time closing may also reduce certain duplicated costs compared with separate construction and permanent loans.
California Construction Loan Financing
Mojave River Mortgage assists borrowers throughout California, including the Mojave River Valley and surrounding communities.
If you are planning to build in Victorville, Apple Valley, Hesperia, Oak Hills or another California community, we can help you explore available construction-to-permanent financing.
Construction Loan FAQs
Can I purchase the land and finance construction together?
Some construction-to-permanent programs allow the eligible lot purchase and construction costs to be included in one transaction.
How much down payment will I need?
The required investment depends on the loan program, credit profile, occupancy, project cost and appraised completed value. Eligible land equity may count toward the requirement in some transactions.
Can I act as my own general contractor?
Many construction lenders require an independent, licensed and approved builder. Owner-builder projects may be restricted or unavailable. Requirements vary by lender.
Does the builder receive all the money at closing?
Generally, no. Construction funds are usually released through draws as completed work is inspected and approved.
Do I make payments during construction?
Payment requirements vary. They may depend on the amount disbursed, interest-reserve structure and loan program. Review the proposed payment schedule before closing.
Is the permanent interest rate locked before construction?
That depends on the loan structure and lender. Ask how the construction and permanent rates are established, whether extensions are available and what fees may apply if construction is delayed.
What happens if construction costs exceed the budget?
The borrower may be responsible for cost overruns or unapproved change orders. Lenders may require contingency reserves to address unexpected eligible expenses.
Can a construction loan finance a major renovation?
Construction-to-permanent loans are generally designed for new construction. Renovation programs, such as an eligible FHA 203(k) or conventional renovation loan, may be more appropriate for improving an existing home.
Start Planning Your New Home
Before purchasing land or signing a construction contract, find out which financing structure may fit your project.
Request a personalized construction loan review based on your income, available funds, land, builder and estimated construction budget
COMPLIANCE DISCLOSURES
This material is for informational and advertising purposes only. It is not an offer to extend credit, a commitment to lend or a guarantee of approval, interest rate, loan amount, construction budget, closing costs, completion date or permanent financing.
All financing is subject to borrower qualification, credit approval, income and asset verification, acceptable appraisal, sufficient funds and reserves, title review, builder approval, project approval, construction documentation, underwriting and applicable lender and program requirements.
One-time-close financing does not eliminate construction inspections, draw controls, title updates, builder requirements or completion conditions. Potential savings from a single closing depend on the transaction and are not guaranteed.
Interest rates, payments and fees may vary between the construction and permanent phases. Construction delays may result in extension fees, additional interest or other costs. Borrowers may be responsible for cost overruns, change orders and expenses exceeding the approved construction budget.
Government-backed programs may impose owner-occupancy, mortgage-insurance, guarantee-fee, funding-fee, geographic, income, property and builder requirements. Program availability is subject to lender participation and may change without notice.
Mojave River Mortgage is not a builder, contractor, architect, engineer or construction manager and does not guarantee the builder’s work, project cost or completion. Consumers should independently evaluate builders and obtain appropriate legal, construction, insurance and tax advice.
Mojave River Mortgage is not affiliated with or acting on behalf of HUD, FHA, VA, USDA, Fannie Mae or any other government agency or government-sponsored enterprise.