Plan the financing before you buy the lot or sign the builder contract.
A construction loan pays for building a home in stages and, with a one-time close program, turns into your regular mortgage when the home is finished. Through PRMG programs, Ken Clark Jr. helps buyers, landowners, veterans, investors, and builders in Sacramento, Northern California, New Jersey, and nationwide where licensing permits.
A construction loan is financing that pays for building a home in stages instead of all at once. Money is released in draws as each phase of work is completed and verified, so the lender is never funding more than the value of the work in place.
Most people building a home they will live in use a construction-to-permanent loan. It covers the build and then becomes a regular long-term mortgage when the home is finished. Investors and builders typically use shorter-term, business-purpose construction loans that are repaid when the property is sold or refinanced.
Short answer: you qualify, your builder completes builder registration, the home is appraised based on the plans, you close, and funds are released in draws until the home is done.
Short answer: one-time close uses one loan and one closing for the build and the mortgage. Two-time close uses a construction-only loan, then a separate mortgage after the home is finished.
| One-time close (construction-to-permanent) | Two-time close (construction-only, then mortgage) | |
|---|---|---|
| Closings | One | Two |
| Closing costs | One set | Two sets |
| Requalify after construction | Generally no | Yes, at the second closing |
| Permanent loan terms | Set up front, depending on program | Chosen after the home is built |
| Risk if income, credit, or rates change mid-build | Lower | Higher |
| Often fits | Owner-occupied buyers who want certainty | Borrowers who need flexibility on the final loan |
Most owner-occupied buyers prefer one-time close because it removes the risk of qualifying again after the house is built. For a deeper walk-through, see the full one-time close construction loan guide.
Short answer: depending on the borrower, property, and state, PRMG programs may include government and conventional construction-to-permanent loans for homes you will live in, and business-purpose construction for investors and builders. Programs are available in every state where PRMG is licensed (all states except New York), and requirements vary by program, so the first step is matching your scenario to the programs that fit.
| Program | May fit | Down payment (general) | Occupancy |
|---|---|---|---|
| VA construction | Eligible veterans, service members, and surviving spouses | May be $0 for eligible veterans with full entitlement | Primary residence |
| FHA construction | Buyers with moderate credit or limited savings | FHA minimum 3.5% for eligible borrowers; construction guidelines may require more | Primary residence |
| USDA construction | Income-eligible buyers in eligible rural areas | May be $0 for eligible buyers | Primary residence |
| Conventional construction | Stronger credit, larger budgets, second homes | Varies by occupancy and program | Primary or second home |
| Jumbo construction | Custom homes above conforming loan limits | Larger down payment and reserves typically required | Primary or second home |
| Investor ground-up construction | Investors building to sell or rent | Based on experience and project | Business purpose, non-owner-occupied |
| Fix and flip / renovation | Investors renovating to sell or rent | Based on experience and project | Business purpose, non-owner-occupied |
| Builder project loans | Builders financing spec or presold homes | Based on experience and project | Business purpose |
Renovating instead of building? See renovation loans and the FHA 203(k) vs HomeStyle comparison.
Short answer: borrowers with documented income, acceptable credit, enough funds or land equity for the down payment and reserves, a builder who completes builder registration, and a complete set of plans and a budget. Requirements vary by program.
Construction guidelines are often stricter than a standard purchase because the lender is financing a home that does not exist yet. Expect a review of:
Full checklist: construction loan requirements. Not sure where you stand? Start with your buying power or a quick call.
Short answer: often yes. Depending on the program and transaction, equity in land you already own may be counted toward the down payment or financing structure.
How much it helps depends on how and when you acquired the land, its current appraised value, any existing loan on it, the construction budget, and the completed value of the home. Land you bought recently may be valued at what you paid rather than today's appraisal. Gifted or inherited land has its own documentation requirements. If there is a loan on the land, it is usually paid off at closing as part of the construction loan.
Buying the land too? Some construction-to-permanent programs can finance the lot purchase and construction together in one loan with one closing, subject to the lot, the builder, the plans, and program guidelines. See buying land and building and the full land equity guide.
Short answer: your builder must complete builder registration, which is a documentation review for program eligibility. It is not an endorsement or guarantee of the builder's work.
Builder registration commonly includes:
Some programs have additional requirements. VA construction, for example, requires the builder to have a VA builder ID. Full details: builder registration. In California, you can check a contractor's license on the CSLB License Check.
Short answer: construction funds are released in stages as work is completed. Each draw is verified by an inspection or photo review before funds are sent.
A typical build moves through permitting, site work and foundation, framing, dry-in (roof, windows, exterior doors), mechanical rough-in, insulation and drywall, finishes, and final inspection. The exact draw schedule is set by the program and the construction contract. Some programs can release funds within a few business days of a complete, verified request. Incomplete paperwork is the most common reason draws slow down. More: the construction loan draw process.
It depends on the program. On FHA and VA one-time close loans, in most cases no mortgage payments are due until the home is finished, because the interim interest is typically built into the builder's contract price. USDA one-time close commonly sets aside a payment reserve at closing. Conventional one-time close and most other construction loans require interest-only payments on the amount drawn so far. You are typically responsible for property taxes that come due during construction.
Construction periods for a single-family home commonly run about 6 to 12 months. Custom homes, rural lots, and projects with longer permitting can take more. Some programs allow extensions, and the terms are set in your loan documents.
The appraisal is completed based on the plans and specifications, estimating the home's value when finished. That as-completed value, together with the total project cost (land plus construction), drives how much can be financed. A budget that runs well ahead of what similar finished homes sell for is one of the most common reasons a project has to be adjusted.
Short answer: owner-builder financing is limited. One-time close programs for a home you will live in require a licensed builder acting as the general contractor under a fixed-price contract, and the builder must complete builder registration.
Some PRMG programs may allow an experienced owner-builder, particularly on business-purpose investor projects, when you can document relevant construction experience, carry the required insurance, and provide the same budget, plans, and schedule a builder would. If you plan to manage your own build, raise it on the first call, before you buy land or draw plans.
Short answer: through PRMG programs, investors and builders may finance ground-up construction, fix and flip renovations, and spec or presold builder projects on non-owner-occupied properties. These are business-purpose loans, not available for a primary residence or second home.
Loan amounts may range from about $100,000 to $5 million, with leverage based on experience, the project, and program guidelines. See fix and flip loans, ground-up construction for builders and investors, and investment property financing.
Business-purpose loans are for non-owner-occupied investment properties only and are not consumer mortgage loans. Subject to underwriting, property eligibility, and program guidelines.
Educational illustration only. Not an actual client, loan offer, or commitment to lend.
A couple owns a lot outside Placerville, bought several years ago and now appraised at $150,000, with no loan on it. Their builder's line-item budget is $450,000 including a contingency, and the appraiser estimates the finished home at $620,000. Total project cost is $600,000.
On a one-time close program, their $150,000 in land equity may be credited toward the required down payment, which could mean little or no additional cash for the down payment, depending on the program. The rest of the file still has to work: income and credit, reserves, builder registration, and an as-completed value that supports the loan. If the lot had a loan on it, that balance would typically be paid off at closing from the construction loan.
After 28 years, I can tell you the program is rarely the problem. Construction files get delayed by paperwork that shows up late. Here is what I tell every client before they commit to a lot or a builder:
Northern California. Many Sacramento-area builds are on rural or foothill lots in Placer, El Dorado, and Yolo counties, where well and septic, road access, and wildfire hazard zones shape both the budget and insurance. New homes in California must meet state energy code requirements, including solar on most new single-family homes. Verify your builder's license with the Contractors State License Board, and check fire hazard zones with the Office of the State Fire Marshal. Local guides: Sacramento, Placer County, El Dorado County, and California. Local context: Sacramento mortgage advisor, Placer County, El Dorado Hills.
New Jersey. Construction is governed by the New Jersey Uniform Construction Code, administered through the NJ DCA Division of Codes and Standards. New Jersey also requires builders of new homes to register under the state's New Home Warranty and Builder Registration program, which is a state requirement separate from lender builder registration. Teardown-and-rebuild projects in North Jersey and flood-zone construction at the shore are common. Full guide: New Jersey construction loans. See New Jersey mortgage advisor and Bergen County.
Answered by Ken Clark Jr., Certified Mortgage Advisor. Program availability and requirements vary and are subject to change.
A construction loan is short-term financing that pays for building a home in stages, called draws, as work is completed and verified. Many borrowers use a construction-to-permanent loan, which converts to a regular mortgage when the home is finished.
A one-time close loan, also called a single-close or construction-to-permanent loan, combines the construction financing and the permanent mortgage into one loan with one closing. It can avoid a second closing, a second set of closing costs, and requalifying after the home is built, depending on the program.
A one-time close loan has a single closing for both the construction phase and the permanent mortgage. A two-time close uses a construction-only loan first, then a separate mortgage after the home is built, which means two closings and qualifying again at the end. Two-time close can offer more flexibility on the final loan but adds cost and requalification risk.
Depending on the borrower, property, and state, PRMG programs may include VA, FHA, USDA, conventional, and jumbo construction-to-permanent financing for homes you will live in, plus business-purpose ground-up construction, fix and flip, and builder project loans for investors and builders. Program availability and requirements vary.
It depends on the program. VA construction may allow no down payment for eligible veterans with full entitlement, and USDA may allow no down payment in eligible rural areas for income-eligible buyers. FHA's minimum is 3.5 percent for eligible borrowers. Conventional and jumbo construction usually require more. Equity in land you already own may count toward the requirement, subject to program guidelines.
Often yes. Equity in land you own may be counted toward the down payment or financing structure, depending on the program, how and when the land was acquired, its appraised value, any liens, the construction budget, and the completed value.
In many cases, yes. Some construction-to-permanent programs can finance the lot purchase and construction in one loan with one closing, subject to the lot, the builder, the plans, and program guidelines.
Minimums vary by program and are often higher for construction than for a standard purchase loan because the lender is financing a home that does not exist yet. The best way to know is a review of your actual credit profile against current program guidelines.
Yes. Builder registration is a documentation review for program eligibility. It commonly covers licensing, insurance, experience, identification, the contract, plans and specifications, and a line-item budget. It is not an endorsement or guarantee of the builder's work.
Owner-builder financing is limited. One-time close programs for a home you will live in require a licensed builder acting as the general contractor under a fixed-price contract, and the builder must meet builder registration requirements. Some PRMG business-purpose investor programs may allow an experienced owner-builder, subject to documentation and program guidelines.
After closing, construction funds are held and released in draws as work is completed. The builder or borrower requests a draw, an inspection or photo verification confirms the work, and funds are released for the completed items. Timing depends on the program and how complete the request is.
It depends on the program. On FHA and VA one-time close loans, in most cases no mortgage payments are due until the home is complete. USDA commonly uses a payment reserve set up at closing. Conventional one-time close and most other construction loans require interest-only payments on funds drawn.
Construction periods commonly run from about 6 to 12 months for a single-family home, and some programs allow longer periods or extensions. The timeline is set in your loan documents and depends on the program and the project.
The appraisal is usually completed subject to the plans and specifications, which estimates what the home will be worth when finished. That as-completed value, together with the total project cost, drives how much can be financed.
Most programs build in a contingency reserve for overruns. Costs beyond the contingency are usually the borrower's or builder's responsibility under the construction contract. That is why a detailed, line-item budget and a clear contract matter before closing.
Yes. PRMG programs may include business-purpose ground-up construction, fix and flip, and builder project loans for non-owner-occupied properties. These are not available for a primary residence or second home and are subject to experience, project, and program guidelines.
Guidelines change. Verify current program requirements with Ken Clark Jr. before relying on them for a transaction.
Disclaimer: This content is for educational purposes only and is not a commitment to lend, a guarantee of approval, or a rate quote. Loan programs, down payment requirements, terms, and eligibility depend on borrower, property, project, builder, and program qualifications, are subject to underwriting, and vary by state. Not all applicants or projects will qualify. Builder registration is a documentation review for program eligibility and is not an endorsement of any builder. Equal Housing Opportunity. Paramount Residential Mortgage Group, Inc. (PRMG), NMLS #75243. Ken Clark Jr., NMLS #225375. PRMG is licensed in 49 states, excluding New York.
Certified Mortgage Advisor and Branch Manager at PRMG Mortgage (NMLS #75243). 28 years in mortgage lending. Specializes in FHA, VA, conventional, DPA, jumbo, Non-QM, renovation, and construction financing for buyers and investors in Sacramento, New Jersey, and nationwide. PRMG is licensed in 49 states, excluding New York. Three-time Gold Award winner for Highly Reviewed Mortgage Team in Sacramento (2023, 2024, 2025). NMLS #225375.
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