A $650,000 Goochland County custom build with 20% down requires a $520,000 construction loan. If the finished-home rate is 6.50% on a 30-year fixed loan, principal and interest after conversion is about $3,287 per month. At 6.75%, it rises to about $3,373 – a $86 monthly difference and $5,160 over the first five years, before taxes, insurance, and HOA dues. That is why a construction loan process guide should begin long before a builder breaks ground: the financing structure affects your cash, your timeline, and the home you can comfortably keep.
For acreage buyers in Manakin-Sabot, Oilville, Sandy Hook, and the broader rural Richmond corridor, construction financing has extra moving parts. A well, septic approval, private road, larger lot, and construction contingency can all change the approval conversation. The goal is not simply to get approved. It is to establish a realistic budget and a draw process that lets the build move forward without unpleasant surprises.
By Duane Buziak, NMLS #1110647
Table of Contents
- How construction financing works
- Prepare your budget, lot, and builder
- The construction loan process guide, step by step
- Construction-to-permanent versus two-close financing
- Draws, inspections, and common delays
- Questions Virginia builders ask most often
How construction financing works
A construction loan funds a home in stages rather than delivering the full balance to the builder on day one. During construction, you usually make interest-only payments based on the amount drawn. Once the home is complete, the financing either converts into a permanent mortgage or is paid off with a separate permanent loan.
That distinction matters. A construction-to-permanent loan has one closing, one underwriting approval, and a conversion to the permanent phase when the home receives its certificate of occupancy. A two-close structure uses separate construction and permanent mortgages. The second approach may offer more flexibility if rates improve during the build, but it creates another qualification event, additional closing costs, and the risk that income, credit, or market conditions change before completion.
For context, the 2025 baseline one-unit conforming loan limit is $806,500. A build above that amount may require jumbo financing, depending on the final appraised value, down payment, and county-specific limit. Conventional, jumbo, VA, and USDA options can all be relevant; the best fit depends on the property, borrower profile, and program rules.
| Feature | Construction-to-Permanent | Two-Close Construction Financing |
|---|---|---|
| Closing structure | One closing before construction begins | One construction closing, then a permanent-loan closing |
| Rate planning | Permanent rate is typically established before or during construction | Permanent rate is selected later, subject to market conditions |
| Qualification timing | Underwritten once, then converted when complete | Borrower generally qualifies again for the permanent financing |
| Closing costs | Usually one main closing event | Usually costs associated with two separate closings |
| Best fit | Borrowers who value certainty and a simpler finish line | Borrowers willing to accept more moving parts for later rate flexibility |
Prepare your budget, lot, and builder
The build budget is more than the builder’s contract price. It should include land, site work, permits, architectural and engineering costs, well and septic work if applicable, driveway construction, utility connections, contingency funds, and closing costs. In central Virginia, closing costs commonly run roughly 2% to 5% of the loan amount, depending on escrows, title charges, program, and whether land is being acquired at closing. Ask about our no-out-of-pocket closing options if preserving cash is a priority.
A larger lot can be a strength, but it requires careful review. A 10-acre parcel west of Richmond may have value that supports the financing, yet the appraisal must still justify the completed value using appropriate comparable properties. Raw land value, soil studies, septic design, and access easements are not side details. They are part of the file.
Goochland County’s 2023 American Community Survey median owner-occupied home value was approximately $408,000, but custom homes in areas such as Manakin-Sabot and along River Road frequently sit well above countywide figures. Your financing should be based on the appraised completed value and your actual contract, not a countywide median that may not reflect your lot, finishes, or location.
Before submitting a full application, assemble the lot contract or deed, builder contract, plans, specifications, detailed budget, builder license and insurance information, and a construction timeline. A broker can identify missing pieces early, when they are manageable rather than urgent.
The construction loan process guide, step by step
Start with a no-touch credit review and realistic payment target
A soft credit review can help identify likely program options without a hard inquiry. Credit score expectations vary. Many conventional construction programs look for scores around 680 or higher, while stronger pricing and flexibility often begin around 700 to 720. Jumbo financing may call for 720 or higher, especially with a large loan amount, acreage, or a more complex income profile.
Do not focus only on the rate. Review the projected permanent payment, cash needed at closing, reserve requirement, and contingency funds. A common reserve expectation is six months of total housing payments for jumbo or higher-balance files, though requirements vary materially by program. Self-employed borrowers should also expect close review of tax returns, business liquidity, and income stability.
Confirm the builder and construction contract
The builder is underwritten along with the project. Expect review of licensing, insurance, experience, financial strength, references, and the contract. The contract should clearly identify the build price, allowances, timeline, change-order rules, and who is responsible for cost overruns.
A vague allowance can become expensive. If the contract carries a $15,000 appliance allowance but your selections total $24,000, the $9,000 difference has to come from contingency funds, savings, or a properly approved change order. Financing cannot solve every selection decision after the fact.
Order the appraisal based on completed plans
Construction appraisals are generally completed “subject to completion” using your plans, specifications, and contract. The appraiser estimates the value of the finished home, not merely the land or partially completed structure. If the completed value comes in below cost, you may need additional cash, a revised scope, or a different financing approach.
This is where local property knowledge matters. A custom farmhouse on acreage in Goochland should not be evaluated as though it were a tract home in Short Pump. Appropriate comparable sales, site characteristics, and marketability all matter.
Complete underwriting and close
Underwriting verifies income, assets, debts, credit, title, appraisal, lot details, builder approval, and the full project budget. Avoid opening new credit, moving large undocumented deposits, changing jobs, or making major purchases while the file is in review.
At closing, your down payment and required funds are established, the construction documents are signed, and the first draw may be released for approved costs such as land acquisition or initial site work. If you already own the lot, its documented equity may sometimes count toward your required investment, subject to program guidelines and appraisal support.
Draws, inspections, and common delays
The draw schedule controls how the builder receives funds. A typical build may use draws for site preparation and foundation, framing, dry-in, mechanical systems, finishes, and completion. Before each draw, the work is inspected to confirm that the requested stage is complete.
During construction, payments are commonly interest-only on the outstanding balance. For example, if $200,000 has been drawn at 8.00%, monthly interest is approximately $1,333. If the outstanding balance later reaches $450,000, monthly interest is approximately $3,000. Plan for that progression alongside your current housing payment if you are not selling first.
The most common delays are not always construction delays. Missing invoices, unsigned change orders, expired insurance certificates, incomplete inspections, and last-minute upgrades can hold up a draw. Keep a dedicated project folder and ask the builder for prompt documentation after every milestone.
Rural sites add their own schedule risks. Weather can slow driveway and foundation work; well yield or septic findings can require redesign; and utility extensions may take longer than expected. A sensible contingency is often 5% to 10% of hard construction costs, depending on the complexity of the project. It is better to have a contingency and not use it than to discover there is no room for a necessary fix.
Choosing the right program for the property
Conventional construction financing is often a practical choice for buyers with established credit, solid down payment funds, and a straightforward primary residence. Jumbo options can support higher-value custom builds, but may require greater reserves and more conservative debt-to-income ratios.
Eligible veterans should examine VA construction options, particularly when preserving cash is important. VA rules, builder approval, appraisal requirements, and availability vary by program. USDA financing can be highly relevant for eligible properties in Goochland, Powhatan, Louisa, Fluvanna, and Cumberland counties, but property eligibility, household income limits, acreage considerations, and appraisal standards must be confirmed before assuming a zero-down outcome.
The right answer depends on more than the advertised rate. It depends on whether the property qualifies, how long construction will take, how much cash you want to retain, whether you own the lot, and how comfortably the permanent payment fits your life after move-in.
Frequently Asked Questions
1. How much down payment is needed for a construction loan?
Many conventional construction programs require 10% to 20% of the total project cost, while jumbo requirements may be higher. Documented lot equity can sometimes help meet the requirement.
2. Can I use land I already own?
Yes. Existing land may be refinanced into the construction financing, and eligible equity may count toward your contribution. Title, value, and any existing liens must be reviewed.
3. Do I pay a mortgage payment while the home is being built?
Usually, you make interest-only payments on funds that have been drawn. The payment increases as construction advances and more funds are released.
4. What credit score do I need?
A score near 680 may be workable for some conventional options. Scores of 700 to 720 or higher can provide more flexibility, particularly for jumbo or complex files.
5. Can USDA finance a newly built home in rural Virginia?
It can for eligible borrowers, properties, and builders. Confirm the address, household income, site characteristics, and program availability before committing to a contract.
6. What happens if the appraisal is lower than the construction cost?
You may need to bring additional funds, reduce the scope, renegotiate costs, or reconsider the financing structure. Resolve the gap before closing, not after construction starts.
7. Can I make changes during construction?
Yes, but use written change orders. Changes can affect cost, timeline, appraisal support, and draw approvals, so communicate them before work is performed.
8. How long does the construction loan process take?
Preconstruction approval commonly takes several weeks once plans, contract, builder documents, appraisal, and property information are complete. The build itself often takes 9 to 14 months, depending on scope, weather, permits, and site conditions.
A thoughtful construction plan gives you room to enjoy selecting your home rather than worrying about every invoice. Start the conversation before you sign the land contract or finalize the builder agreement, especially if acreage, a well, septic, or a USDA-eligible location is part of the vision.
Legal disclaimer: Mortgage programs, rates, fees, credit standards, reserve requirements, loan limits, and property eligibility are subject to change and vary by borrower, property, program, and investor guidelines. This article is educational only and is not a commitment to finance. 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.