Who this is for
Construction-to-permanent (C-to-P) financing is for people building a new home to live in, usually custom on a lot they own or are buying. The loan pays the builder in stages during construction, and the debt ends up as a regular long-term mortgage when the home is finished.
There are two ways to do it:
- One-time close (single close). One loan and one closing before construction starts; the loan converts to the permanent mortgage at completion. Fannie Mae, FHA, VA and USDA all have single-close versions, but relatively few lenders offer them, and terms vary by lender.
- Two-time close. A construction loan (often from a bank or credit union), then a separate permanent mortgage when the home is done. This is the more common route. It means two closings, two sets of closing costs, and qualifying again for the permanent loan at the market rates of the day.
How it works
- Application and builder review. Standard mortgage underwriting plus a review of the builder. You'll need plans, specs, a budget and a signed builder contract.
- Closing. Before construction starts. With one-time close, depending on the program, the permanent rate is either set at closing or at conversion; ask how the lock works and what extensions cost.
- Draw schedule. The lender pays the builder in stages as work is completed (for example foundation, framing, rough-ins, drywall, finish). Each draw is usually checked by an inspector first.
- Interest during construction. Most construction phases charge interest only on the funds drawn so far, so the payment grows as more is drawn.
- Completion. Once the home is finished and the certificate of occupancy is issued, a one-time close loan converts to the permanent mortgage; with two-time close, the permanent loan closes and pays off the construction loan. Some lenders require a final inspection or updated documents before conversion.
What you actually need
- Equity: The required down payment depends on the program and lender. If you already own the lot, its equity can usually count toward it.
- Credit and income: Construction programs are lender-specific, and many set stricter credit and reserve requirements than a standard purchase. Your debt-to-income ratio is figured on the future permanent payment.
- An approved builder: Agency and most lender programs require a licensed, insured builder the lender has reviewed (license, financials, references, prior projects). Expect a fresh review for a custom builder the lender hasn't worked with.
- Documentation: Standard mortgage documents (income, assets, credit) plus the builder contract, plans, specs and budget.
One-time vs. two-time close. One-time close means one set of closing costs and no second qualification at the end of the build. Two-time close has more lenders and more flexibility (for example, a local bank construction loan), but you qualify again and take the market at completion. Which fits depends on your builder, your lot and the programs available for your file.
Florida-specific notes
- Check the contractor's license. Florida contractors are licensed by the state (DBPR) or the county. Look the builder up on myfloridalicense.com before you sign.
- Building it yourself (owner-builder). Florida lets owners act as their own contractor on a one- or two-family home for their own use (F.S. 489.103(7)). Selling or leasing the home within a year of completion is presumed to mean it was built for sale, which voids the exemption. Most agency and lender construction programs won't accept the borrower as the builder, so an owner-builder usually needs a specialty lender.
- Insurance during and after the build. A builder's risk policy covers construction. A homeowners policy with windstorm coverage has to be in place before the permanent loan. In Florida's insurance market, start lining it up early.
- Coast and flood zones. Lots seaward of the Coastal Construction Control Line need a state permit (F.S. 161.053), and homes in a FEMA flood zone must meet local elevation rules. Both affect cost, timeline and the appraisal. If the home is in a special flood hazard area, flood insurance is required for the loan.
- Permitting timelines vary by county. Build permit time into the construction period and ask the lender what extensions cost.
- Builder-paid incentives. Some builders offer credits for using their preferred lender. Compare the full terms, not just the credit.
Common construction scenarios
Production Builder
To-be-built home in a community
Many production builders finance through their own or a preferred lender and close a regular purchase mortgage at completion. A C-to-P loan is rarely needed here.
Custom on Owned Lot
You own the land, custom builder
Lot equity can count toward the down payment. The builder needs lender review. Build timelines on custom homes run long, so plan for extensions.
Lot + Build Combo
Buying lot and building together
Some C-to-P programs include the lot purchase in the same loan. Otherwise, buy the lot first (cash or a lot loan), then use the lot equity toward the construction loan.
Tear-Down + Rebuild
Older home, demo, build new
Some programs fund demolition and the new build on a property you own, using your equity in the land. In coastal and flood-zone neighborhoods, check elevation and permit rules first.
When C-to-P isn't the right tool
- You're buying an already-built spec home from a builder - that's a regular purchase mortgage. Conventional, FHA, VA, or jumbo depending on price.
- Major renovation of existing home - look at FHA 203(k) or Fannie Mae HomeStyle Renovation, which finance the purchase or refinance plus renovation in one loan on an existing home.
- Builder isn't approvable - some custom builders don't have the financials or licensing track record to pass review. In that case, a separate construction loan from a local bank may be the only path.
- Spec or build-to-rent - building to sell or rent is a business-purpose construction loan, not a C-to-P mortgage, and needs a licensed contractor in Florida.
FAQ
What happens if construction takes longer than expected?
Construction loans have a set construction period, and most offer extensions, sometimes at a cost. If a rate lock expires, re-locking is at the market of the day. Ask the lender for the construction period, the extension terms and the lock terms in writing before you close.
Can I make changes to the plans during construction?
Usually, with documentation. Change orders are signed by you and the builder, the lender reviews the cost, and the budget is updated. Larger changes (more square footage, higher cost) may need new underwriting or more cash from you.
Do I pay full mortgage payments during construction?
Usually not. Most construction phases charge interest only on the funds drawn so far, so the payment starts small and grows. Full principal-and-interest payments start once the permanent mortgage is in place. Some lenders let you fund an interest reserve in the loan.
What's the difference between C-to-P and a "construction loan"?
A stand-alone construction loan is short-term, usually interest-only, and must be paid off at completion, normally with a separate permanent mortgage (the two-time close route). A one-time close C-to-P combines both in one loan with one closing. Fewer lenders offer one-time close, so both are worth comparing.
Can I use VA for new construction?
Yes. VA allows construction loans, including one-time close, for eligible veterans building a home to live in. Few lenders offer them, and the builder and property must meet VA requirements.