A $125,000 homesite in Goochland plus a $475,000 build creates a $600,000 project. With 10% down, your permanent loan would be $540,000. At 6.75% on a 30-year fixed loan, estimated principal and interest is $3,502.44 per month. At 6.50%, it is about $3,413.34 – a difference of $89.10 monthly, or $5,346 over five years before taxes, insurance, and any change in balance. That is why knowing how to finance land construction before writing an offer matters as much as choosing the lot itself.
A larger-lot property near Manakin-Sabot, Oilville, or Sandy Hook can be an excellent long-term move, but it has more moving parts than purchasing an existing home. The parcel must support the planned house, the builder must meet program standards, and the financing must account for land, site work, draws, and the finished home value. A good plan starts before you commit earnest money.
By Duane Buziak, NMLS #1110647
Table of Contents
- Why land and construction need a different financing plan
- Construction-to-permanent loans
- Comparing land construction financing options
- What lenders review before approval
- Loan choices for Virginia buyers
- Budgeting for site work and closing costs
- Questions to ask before making an offer
- Frequently asked questions
Why land and construction need a different financing plan
A resale purchase is largely based on the current condition and appraised value of one finished property. A land-and-build project is evaluated in stages. The appraiser considers the homesite, plans, specifications, comparable new construction, and anticipated completed value. During construction, funds are released in draws as verified work is completed.
This distinction matters in western Richmond and Goochland County, where two parcels with similar acreage can carry very different costs. One may have a usable septic field, a cleared driveway entrance, and accessible power. Another may require a long drive, well drilling, engineered septic work, grading, drainage improvements, or rock removal.
For local context, the Goochland County housing market page from Realtor.com has recently shown median listing prices around the mid-$500,000s, although live market figures change frequently. That makes a $600,000 total project realistic for many buyers, but the final loan strategy depends on appraisal support, not simply the sum of the land contract and builder bid.
Construction-to-permanent financing: the cleanest path for many buyers
A construction-to-permanent loan, often called a one-time-close loan, combines the construction phase and long-term mortgage into one approval and one closing. The construction funds are disbursed to the builder through a managed draw schedule. When the home is complete, the loan converts to the permanent mortgage under the terms established at closing.
For a buyer who has not yet purchased the parcel, this can be the most efficient way to finance land construction. Rather than obtaining separate land financing, paying off the land loan later, and applying again for construction financing, the transaction can be structured around the entire project.
The trade-off is preparation. Your builder, plans, budget, contract, permits, and site estimates usually need to be substantially complete before final approval. A construction-to-permanent loan is not designed for a buyer who wants to buy raw land now and decide what to build several years from now.
| Financing path | Best fit | Typical cash need | Construction draw process | Key consideration |
|---|---|---|---|---|
| Construction-to-permanent | Land and build purchased together | Program-dependent down payment | Managed draws to approved builder | One closing and a defined permanent loan |
| Land loan, then construction loan | Buyers holding land before building | Often higher for vacant land | Separate construction approval later | Two transactions and future rate uncertainty |
| Conventional construction loan | Strong credit and documented income | Often 5% to 20% depending on profile | Managed draws | Can work well for primary and second homes |
| VA construction loan | Eligible veterans and service members | Potentially 0% down | Managed draws with approved parties | Builder and project requirements are specific |
| USDA construction loan | Eligible rural primary residences | Potentially 0% down | Managed draws | Location and household income eligibility apply |
How to finance land construction with the right loan type
Conventional construction financing is often a strong option for buyers with stable income, solid credit, and a project that fits standard underwriting. A 680 score may open more options, while 700 to 740 or higher can improve pricing and flexibility. Many programs require reserves after closing, commonly two to six months of the future housing payment. Jumbo construction financing may require six to 12 months of reserves, particularly when the project exceeds the annual conforming loan limit.
For 2025, the baseline conforming loan limit was $806,500 for a one-unit property. Buyers should confirm the current limit for their closing year through the Federal Housing Finance Agency. In a higher-priced custom build, a jumbo structure may be appropriate even if the lot itself seems modestly priced.
VA financing deserves a serious look for eligible buyers who intend to occupy the property. A VA construction loan can offer a 0% down path when program and project requirements are met. The builder must be acceptable, plans must be complete, and the property must meet VA standards. Review current eligibility and benefit details directly through the U.S. Department of Veterans Affairs.
USDA construction financing can be especially valuable across the rural Richmond corridor, including eligible areas of Goochland, Powhatan, Louisa, Fluvanna, and Cumberland counties. It can provide 100% financing for a qualifying primary residence, but household income limits, property eligibility, and program requirements apply. Acreage alone does not disqualify a home, yet the site must be primarily residential rather than income-producing farmland.
FHA construction financing may fit borrowers who need a lower down payment and have credit scores that do not support conventional pricing. FHA’s minimum down payment can be 3.5% for eligible borrowers, although construction programs may add overlays. Review official program information through HUD.
The budget items buyers underestimate
The builder contract is central, but it is not the full project budget. Before pre-approval, identify whether the quoted price includes excavation, driveway installation, utility connections, well, septic, permits, surveys, retaining walls, tree removal, and contingency funds. In rural areas, these figures can move the budget by tens of thousands of dollars.
Use a clear example: if a builder quotes $475,000 but the lot needs a $22,000 well, $28,000 septic system, $18,000 driveway, and $12,000 in grading, the actual build-side cost is $555,000 before closing costs or contingency. Add the $125,000 land cost and the project is $680,000, not $600,000.
Construction closing costs commonly fall around 2% to 5% of the loan amount, depending on title work, appraisal complexity, prepaid items, and program structure. Ask about our no-out-of-pocket closing options if preserving cash is a priority, but understand that costs still exist and must be addressed through a permitted structure.
A contingency reserve is equally practical. Many buyers target 5% to 10% of construction costs for changes, weather delays, material adjustments, or site surprises. It may not all be financed, so discuss the required cash reserve early instead of relying on a credit card after the project begins.
What a broker reviews before you make an offer
Start with a no-touch credit pull, income review, and cash-to-close estimate. Self-employed buyers should expect to provide two years of personal and business tax returns in many cases, although bank statement and non-QM options may help where conventional documentation does not reflect true cash flow.
Next, review the land contract. It should allow adequate due diligence for survey, perc testing, title review, appraisal, and financing. Do not assume an existing septic permit remains valid or that a driveway entrance is approved simply because a neighboring property has one.
Then evaluate the builder. Construction programs commonly require a signed fixed-price contract, detailed specifications, insurance, licensing, and a track record of completed homes. A cost-plus contract may be possible in limited situations, but fixed-price documentation generally gives the financing process more certainty.
Goochland Mortgage can compare construction, conventional, jumbo, VA, USDA, and portfolio-style options through broad wholesale access rather than forcing every project into one program. That is useful when a property has acreage, a detached garage, a basement, or a nonstandard site budget that needs closer review.
Questions to answer before you commit to the lot
The right parcel is not necessarily the cheapest one. Ask whether the finished home is likely to appraise at the total project cost, whether the soil supports the intended septic system, whether utilities are available at the road, and whether the builder has priced the site work accurately.
Also ask how long the rate can be protected. Construction timelines can run 10 to 14 months, sometimes longer with weather, permitting, or material delays. A rate-lock strategy should match the projected completion date and include a clear discussion of extension terms.
Finally, keep your financial profile steady during construction. Avoid opening new credit, financing vehicles, changing jobs without discussion, or making large undocumented deposits. Construction loans are reviewed through completion, not just on the day you sign the initial documents.
Frequently Asked Questions
Can I finance the land and house together?
Yes. A construction-to-permanent loan can finance an eligible lot purchase and the planned home in one transaction when the land is being acquired as part of the project.
Can I use land I already own as my down payment?
Often, yes. Documented equity in owned land may be credited toward required equity or down payment, subject to appraisal, title, and program guidelines.
How much down payment is needed for land construction?
It depends on the program. VA and USDA may offer 0% down for eligible borrowers and properties. Conventional financing often requires 5% to 20%, while jumbo programs may require more.
What credit score do I need for a construction loan?
Many buyers begin exploring options around 680, while stronger conventional pricing commonly appears at 700 to 740 or above. FHA may allow lower scores, subject to program requirements and overlays.
Can USDA finance a newly built home in Goochland County?
Potentially. The property must be in an eligible area, be a primary residence, and the household must meet USDA income requirements. Eligibility can vary by address.
Does a VA construction loan require a down payment?
Eligible VA borrowers may be able to finance with 0% down. Builder approval, appraisal, property standards, and entitlement all matter.
Are well and septic costs included in construction financing?
They can be, when they are part of the documented project budget and approved plans. Obtain reliable estimates before finalizing the loan amount.
What happens if the appraisal comes in low?
You may need to increase your down payment, reduce project costs, renegotiate the land price, revise plans, or select another financing structure. Addressing comparable sales early can reduce surprises.
Building on your own land is a meaningful opportunity to create a home that fits your life, not a reason to accept unclear numbers. Start with the whole project budget, a realistic site-work estimate, and a financing conversation before the lot contract becomes nonrefundable.
Legal disclaimer: Mortgage programs, rates, payments, loan limits, credit standards, income limits, property eligibility, and reserve requirements are subject to change and borrower qualification. This article is educational only and is not a commitment to lend or an offer of 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.