How construction-to-permanent loans work in Texas
A construction-to-permanent loan finances the build and the mortgage in a single transaction. Here is how the one-time close, the milestone draw schedule, and the conversion to a permanent loan work, and where I fit in once your home is built.
Overview
Building a custom home is complicated enough without the financing being a mess. A construction-to-permanent loan wraps the construction line and the permanent mortgage into one closing. One set of fees. One rate locked before the first shovel hits dirt. No requalification risk when the house is done.
During the build, the lender funds draws at milestones. Foundation complete, framing done, mechanical in, drywall up, final finish. Each draw requires an inspection before funds release, and the lender coordinates with you and your builder at every stage.
These loans have more moving parts than almost anything else in mortgage lending, which is why it pays to understand how they are structured before you commit to a builder or a timeline.
Key Details
Where I fit in
Construction lending is a specialized product offered by a limited set of lenders, and it is not one I originate directly. Where I can help is the financing around the build. When a construction loan is structured as a two-close, the permanent mortgage that pays it off once the home is finished is a conventional, FHA, VA, or jumbo loan, and those I do handle.
If you are remodeling an existing home rather than building new, a renovation loan may be the better fit, and you can read about those on my renovation loans page. And if a builder or a bank has handed you a construction loan estimate, I am glad to give it a second read so you understand what you are signing.
Common questions about construction loans
One-close or two-close?
One-close means one set of fees, one rate lock, and no requalification. Two-close means separate construction and permanent loans with duplicate costs and the risk of rate or qualification changes between them. Most borrowers choose one-close when the lender offers it.
Can I build on land I already own?
Yes. Lot equity counts toward your investment. If you own the land free and clear, that can significantly reduce the additional cash you need to bring.
Do I make payments during construction?
Interest only on the amount disbursed so far. As more draws fund, the payment steps up. But you are not paying on money that has not been released yet.
How long can the build take?
Programs typically allow up to 12 months for construction, with some room for extensions. Lenders set the timeline based on the project scope.
Financing a home after the build?
Construction loans are not something I originate, but the permanent mortgage that pays one off is. Tell me where your project stands and I will map out the financing for once the home is done, or point you toward a renovation loan if you are remodeling instead.