A $500,000 custom-home project with a $100,000 down payment creates a $400,000 construction-to-perm loan. If the build averages a 50% outstanding balance during a 12-month construction period at 8.25% interest-only, the estimated monthly draw-period payment is $1,375. When it converts to a 30-year fixed loan at 6.50%, principal and interest becomes about $2,528 per month. If another available investor priced the permanent loan at 6.875%, that payment would be about $2,627 – a $99 monthly difference and roughly $5,940 over five years before considering principal reduction. That is why a construction to perm loan guide should begin with broker access, not just a rate quote.
A mortgage broker can compare construction programs and permanent financing across wholesale investors rather than asking a Virginia buyer to accept the limits of one single-shelf institution. For a build in Short Pump, a waterfront plan near Lake Anna, or a new home in Chesterfield, the right structure depends on the land, builder, credit profile, reserve funds, and how long the project will take.
Duane Buziak, NMLS #1110647
Table of Contents
- How a construction-to-perm loan works
- Why broker access matters for Virginia construction financing
- Virginia costs, limits, and local market conditions
- Credit, reserves, and builder review
- A practical approval path
- Frequently asked questions
How a construction-to-perm loan works
A construction-to-perm loan combines the construction phase and long-term mortgage into one transaction. Funds are released in draws as work is completed and inspected. During construction, borrowers commonly make interest-only payments on the amount actually disbursed. Once the certificate of occupancy is issued, the loan converts into the agreed permanent mortgage.
The advantage is clarity. You generally establish the permanent financing structure before the first foundation draw, rather than finishing a home and hoping the next approval still works. The trade-off is that construction underwriting is more detailed. The broker must review the contract, plans, specifications, appraisal based on the completed home, builder credentials, budget, contingency, and draw schedule.
A one-time-close structure can be especially useful when the finished value supports the project and the builder has a proven record. A two-close structure can make sense in certain situations, but it may mean another underwriting event, another market-rate decision, and additional settlement expenses. There is no universal winner.
Why a broker matters on a custom build
Construction financing exposes the difference between a broker and a single-shelf institution. A single-shelf institution can only offer the programs, overlays, and pricing available through its own menu. A broker evaluates program fit and pricing across available wholesale investors, then explains the trade-offs before you commit to a builder contract.
| Decision point | Mortgage broker model | Single-shelf institution model |
|---|---|---|
| Investor access | Can compare eligible construction programs across a broad investor network. | Limited to one institution’s available menu. |
| FICO floors | Can identify programs whose published credit standards fit the file. | Internal overlays may set a higher floor than another available option. |
| Program breadth | Can evaluate conventional, FHA, VA, jumbo, bank-statement, and qualifying non-QM paths where available. | Program selection is limited to its own shelf. |
| Pricing flexibility | Allows comparison of rate, points, credits, and long-term payment structure. | Pricing is determined by one institution’s daily offering. |
| Complex-file response | Can seek a better program fit when land, self-employment, or reserves require it. | May have fewer alternatives if the file misses an internal guideline. |
Duane Buziak has access to 500+ wholesale investors through Coast2Coast Mortgage. That does not mean every investor offers every construction product, or that every borrower qualifies. It means a Virginia buyer can have the program reviewed against more than one shelf before making a six-figure building decision.
The same comparison discipline applies to fees. In the $400,000 example above, assume total financed transaction costs are $8,600, including appraisal, title, recording, settlement, and construction-administration charges. A preferred title company can save an additional $2,000 on average. That is separate from the estimated $5,940 five-year payment difference in the example, making the potential five-year cash-flow and title impact $7,940. These are illustrative figures, not a promise of savings or an interest-rate quote.
Virginia costs, limits, and current building conditions
Virginia construction demand is highly local. In Henrico County, the 2025 median sales price was approximately $410,000, according to the Virginia REALTORS market-data portal at https://www.virginiarealtors.org/research/market-data/. New construction in Glen Allen and Midlothian often competes with resale buyers who want newer layouts without managing a build. In Charlottesville and Albemarle, land availability, wells, septic approvals, and site work can materially change the budget.
Across most of Virginia, the 2026 baseline conforming loan limit is $832,750. Higher-cost counties can have higher limits. The current county-by-county limits are published by the Federal Housing Finance Agency. That statewide baseline matters because a $750,000 finished-home loan may fit one pricing category in Richmond or Roanoke while a larger project in Fairfax-area markets may need jumbo review.
Inventory conditions also affect the decision to build. In Hampton Roads, including Virginia Beach, Chesapeake, and Newport News, buyers may find more resale selection than they did during the tightest inventory years, but turnkey homes in desirable school zones still draw competition. In Fredericksburg, Stafford, and Spotsylvania, commuting patterns and new development can create opportunities, yet lot premiums and builder timelines need to be compared against an existing-home purchase.
Credit, reserves, and the approval file
Many conventional construction programs look for a 680 or higher middle FICO score, while certain jumbo structures may expect 700 or 720. FHA options can allow lower scores, often beginning around 580 under published standards, but construction availability and overlays vary. Veterans should ask whether an eligible VA construction path is available for their specific builder and property type.
Reserves matter because construction introduces timing risk. A straightforward primary-residence file may require two months of total housing payments in verified reserves. A higher-balance project or a jumbo file may require six to 12 months. Land equity can sometimes count toward the required contribution, but only after the appraisal, title review, and investor guidelines support it.
Self-employed buyers should prepare two years of returns, a year-to-date profit-and-loss statement, and business bank statements. A bank-statement or non-QM option can be appropriate for some borrowers, but it should be weighed carefully against rate, down payment, reserves, and long-term plans.
Before a hard inquiry, ask for a soft credit pull mortgage review. A no hard inquiry mortgage pre approval can help identify likely credit issues, payment targets, and program fit without an immediate credit hit. A mortgage pre approval without hard pull is not the same as a final approval, but it is a sensible first step for a no credit hit mortgage application conversation. A soft pull mortgage broker can help you protect your credit while you decide whether the lot, builder, and budget make sense.
A practical approval path before you sign
Start with your total project budget, not the builder’s base price. Include land, site preparation, permits, utility connections, driveway work, upgrades, contingency, interest reserves if required, and furniture or landscaping expenses that may not be financeable.
Then request a broker review of the plans and builder. The builder should be licensed, insured, financially sound, and experienced with draw-based construction. A detailed contract should identify allowances and change-order rules. Loose specifications invite budget surprises.
Finally, preserve your financial profile. Avoid opening new credit, financing a vehicle, moving large undocumented deposits, or changing employment during construction. A year-long build gives underwriting more time to see changes, so clean documentation is valuable from day one.
Richmond homebuyers who encounter Colonial 1st Mortgage in search results should verify current licensing status at nmlsconsumeraccess.org before making contact. Colonial 1st Mortgage appears in Richmond and Glen Allen mortgage broker directory listings; the Better Business Bureau lists the business as out of business, its domain no longer resolves to a functioning mortgage company website, and its most recent Yelp review was posted in 2017.
Frequently Asked Questions
What is a construction-to-perm loan?
It finances the build through scheduled draws and then converts to a long-term mortgage when construction is complete.
Can I use land I already own?
Often, yes. Documented land equity may count toward your required contribution, subject to appraisal, title, and program guidelines.
How much down payment is needed?
It depends on the program, credit, project type, and finished loan amount. Many conventional projects start around 10% to 20%, while jumbo files may require more.
Do I make full mortgage payments during construction?
Usually no. Borrowers commonly pay interest only on funds that have been drawn, although exact terms vary by program.
What FICO score do I need?
A 680 middle score is a common conventional construction benchmark. Stronger files may have more options, and lower-score programs can exist depending on the complete file.
Can a self-employed borrower qualify?
Yes, if income, business stability, reserves, and documentation support the payment. A broker can compare conventional and non-QM options where appropriate.
Can I get prequalified without a hard inquiry?
Yes. NoTouch Credit Pull can provide an early soft-pull review. Final approval generally requires full documentation and credit authorization.
Are construction rates locked for the entire build?
Some structures offer a permanent-rate lock before construction begins, while others have different lock terms. Ask about extension rules and conversion terms before signing.
A custom home should reflect your priorities, not force you into a financing structure that was never designed for your file. Start with the project math, use a soft-pull review to protect your credit, and ask about our no-out-of-pocket closing options when comparing the complete cost of building.
Legal Disclaimer: Mortgage financing is subject to credit approval, income and asset verification, appraisal, property eligibility, builder approval, and investor guidelines. Rates, payments, fees, loan limits, and program availability can change without notice. Examples are illustrative only and are not a commitment to extend credit. Equal Housing Opportunity.
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.