Can You Combine Land Purchase with Construction Loan?
Yes, you can combine land purchase with a construction loan through one-time close financing. This approach bundles the lot acquisition and building costs into a single loan with one application, one closing, and one set of fees. Combined financing is available for residential and commercial projects, making it easier to purchase land and build without managing multiple separate loans.
At Clear House Lending, we help buyers, builders, and investors navigate combined land and construction financing options. Understanding how these combo loans work will help you save money, simplify your project, and move forward with confidence whether you're building a custom home or developing commercial property.
How Combined Land + Construction Loans Work
A combined land + construction loan provides all the financing you need to purchase raw land and build on it through a single loan product. Instead of obtaining a separate lot loan, waiting, then applying for construction financing, you handle everything at once.
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The Single-Close Advantage
When you close on a combined loan, the first disbursement immediately pays for the land purchase, transferring title to you. The remaining loan balance is held in reserve and released through scheduled draws as construction progresses. You make interest-only payments on disbursed funds during construction, keeping carrying costs manageable.
Once construction is complete and you receive your certificate of occupancy, the loan automatically converts to a permanent mortgage with principal and interest payments. There's no second closing, no second set of fees, and no need to requalify for permanent financing.
Why Lenders Offer This Product
Combined financing actually reduces lender risk compared to separate loans. When lenders evaluate the entire project upfront, including land value, construction plans, and borrower qualifications, they have a complete picture of the transaction. This unified underwriting means fewer surprises and lower default rates.
For borrowers, the benefits are substantial: simplified paperwork, reduced costs, locked-in permanent rates, and a streamlined experience from land purchase to move-in day.
Combined Loan vs. Separate Financing
Choosing between combined financing and separate loans depends on your timeline, budget, and flexibility requirements.
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When Combined Financing Makes Sense
Combined land + construction loans work best when:
- You're ready to build immediately: If you've found land and have finalized construction plans, combining everything into one loan saves time and money
- You want cost certainty: Locking in your permanent mortgage rate before construction protects against rate increases during building
- Simplicity matters: Managing one loan relationship is easier than coordinating multiple lenders
- You want to minimize closing costs: One closing means one set of appraisal fees, title insurance, origination fees, and recording costs
The typical borrower saves $3,000 to $8,000 in closing costs by using combined financing versus separate land and construction loans.
When Separate Loans Make More Sense
Separate financing might be better when:
- You need time between land purchase and construction: If you're buying land now but won't build for 12-24 months, a separate lot loan provides flexibility
- Your plans aren't finalized: If construction details are still evolving, waiting to lock in a construction loan gives you room to adjust
- You want to shop rates later: If you believe rates will drop, getting a construction loan closer to your build date lets you capture better terms
However, separate financing means qualifying twice, paying closing costs twice, and accepting the risk that rates or lending requirements could change before you're ready for the second loan.
Types of Combined Financing Options
Several loan products allow you to combine land purchase with construction financing. The best choice depends on your situation, property type, and eligibility.
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One-Time Close Construction Loans
One-time close loans are the most streamlined option. You apply once, close once, and the loan converts automatically to permanent financing when construction finishes. These loans are available from banks, credit unions, and specialized construction lenders.
Key features include:
- Single application and underwriting process
- Rate lock protection for the permanent mortgage
- No requalification required at construction completion
- Available for primary residences, second homes, and investment properties
Clear House Lending offers one-time close financing through our vertical construction programs, providing competitive rates for multi-story residential and commercial builds.
Construction-to-Permanent Loans
Construction-to-permanent loans function similarly to one-time close products but may have slightly different structures depending on the lender. The construction phase has its own terms (often adjustable rates with interest-only payments), then converts to your permanent mortgage at completion.
These loans work well for:
- Custom home builds on purchased land
- Major renovations that require construction financing
- Owner-occupied properties where buyers want payment certainty
Government-Backed Options
FHA One-Time Close Loans allow down payments as low as 3.5% for qualifying borrowers. These loans are ideal for first-time buyers with limited savings who want to build rather than buy existing homes. Credit requirements are more flexible than conventional options.
VA Construction Loans provide 0% down payment options for eligible veterans, active-duty service members, and qualifying spouses. VA construction loans can include land purchase and offer some of the best terms available for those who qualify.
Commercial Combined Financing
For commercial projects, combined land + construction loans are available through specialized lenders. These typically require:
- Higher down payments (20-30%)
- Detailed business plans and projections
- Experienced development teams
- Strong personal and business credit profiles
Our horizontal construction financing programs serve developers building subdivisions, commercial sites, and mixed-use projects where land acquisition and site development are combined.
The Combined Loan Process Step by Step
Understanding the process helps you prepare properly and avoid delays.
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Step 1: Get Pre-Qualified for Combined Financing
Before shopping for land, get pre-qualified for combined financing. This tells you:
- Your maximum total project budget (land plus construction)
- Likely down payment requirements
- Interest rates you can expect
- Documentation you'll need for full approval
Pre-qualification also strengthens your land offers. Sellers prefer buyers who have financing arranged, especially for larger purchases where transaction certainty matters.
Step 2: Find and Contract Suitable Land
With pre-qualification in hand, search for land that meets your project goals and lender requirements. Important factors include:
- Zoning: Must allow your intended use (residential, commercial, etc.)
- Utilities: Access to water, sewer, and power (or feasibility of bringing them to the site)
- Environmental: No contamination, wetlands, or protected areas that prevent development
- Access: Legal road access, either direct or through recorded easements
- Title: Clear ownership with no liens or disputes
When you find the right property, execute a purchase agreement with financing and inspection contingencies. These protect you if the loan doesn't close or if site issues are discovered.
Step 3: Finalize Construction Plans and Contractor
While under contract for land, finalize your building plans. Lenders require:
- Complete architectural drawings and specifications
- Detailed cost breakdown from your contractor
- Construction timeline with milestones
- Proof of contractor licensing, bonding, and insurance
- Permit applications or approvals
The more complete your construction package, the faster approval will proceed. Incomplete or vague plans cause delays and may result in lower loan amounts than you need.
Step 4: Submit Full Application
With your land contract and construction documentation ready, submit your complete loan application. You'll provide:
- Personal financial documentation (tax returns, pay stubs, bank statements)
- Land purchase agreement
- Construction plans and budget
- Contractor information and credentials
- Asset and liability statements
The lender will order an as-completed appraisal, estimating what your finished project will be worth. Your loan amount is typically capped at 80-90% of either the as-completed value or your total project cost, whichever is lower.
Step 5: Close on Combined Financing
At closing, you sign one set of loan documents covering land purchase, construction financing, and permanent mortgage conversion. The first draw immediately funds the land acquisition, and you take title to the property.
Remaining construction funds are held in reserve. Your loan account is established, and you begin making interest-only payments on disbursed amounts.
Step 6: Build and Convert to Permanent Mortgage
Construction proceeds according to your approved plans. As work is completed, you request draws from the lender. An inspector verifies completed work before each disbursement is released.
When construction finishes and you receive your certificate of occupancy, the loan converts to permanent mortgage terms. No additional closing or requalification is required. You simply transition from interest-only payments to standard principal and interest payments on your completed home or building.
Qualification Requirements
Meeting lender requirements upfront prevents delays and denials.
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Credit Score Requirements
Conventional combined loans typically require minimum credit scores of 680, with better rates available at 720 and above. Government options have different thresholds:
- FHA: Minimum 620, with best terms at 680+
- VA: No minimum score, though most lenders want 620+
- Conventional: Usually 680 minimum, 720+ for best rates
If your score is below these thresholds, spend 6-12 months improving it before applying. Pay down credit card balances, correct any errors on your credit reports, and avoid opening new accounts.
Income and Debt Requirements
Lenders verify income through tax returns (usually two years), W-2s, and pay stubs. Self-employed borrowers face additional scrutiny and typically need at least two years of consistent self-employment income documented on tax returns.
Your debt-to-income ratio should be below 43-45% for most combined loan products. This calculation includes your projected permanent mortgage payment, not just current debts.
Down Payment and Reserves
Expect to provide 10-20% down payment on total project cost (land plus construction budget). Lower down payments may be available through FHA (3.5%) or VA (0%) for qualifying borrowers.
Additionally, most lenders require cash reserves equal to 3-6 months of projected mortgage payments after closing. These reserves demonstrate your ability to handle unexpected costs or delays.
Property and Project Requirements
Beyond borrower qualifications, the property and project must meet lender standards:
- Land must appraise appropriately and have clear title
- Construction plans must be complete and buildable
- Contractor must be licensed, bonded, and insured
- Project timeline must be realistic (typically 12-18 months maximum)
- Budget must include appropriate contingency (10-15%)
Cost Savings with Combined Financing
One of the biggest advantages of combined loans is cost savings. Here's how the numbers typically work:
Closing Cost Comparison
Separate Loans (Land + Construction + Permanent):
- Land loan closing costs: $2,000-$4,000
- Construction loan closing costs: $3,000-$6,000
- Permanent mortgage closing costs: $3,000-$5,000
- Total: $8,000-$15,000
Combined One-Time Close Loan:
- Single closing costs: $4,000-$8,000
- Total: $4,000-$8,000
Typical Savings: $4,000-$7,000
Interest Savings
Combined loans also potentially save interest costs. With separate financing, you might pay higher rates on land loans and carry those costs longer while arranging construction financing. Combined loans move you directly from land purchase into construction, minimizing carrying time at higher rates.
Use our commercial mortgage calculator to compare scenarios and estimate your potential payments under different financing structures.
Working with Clear House Lending
At Clear House Lending, we specialize in construction financing that meets your specific project needs. Our team has extensive experience with combined land + construction loans for:
- Custom home builders creating their primary residence or second home
- Real estate investors developing rental properties or spec homes
- Commercial developers executing ground-up construction projects
- Business owners building owner-occupied facilities
We work with multiple lenders offering combined financing options, matching your project with the right product based on your qualifications, property type, and goals.
Why Borrowers Choose Us
- Construction expertise: Our team understands the unique requirements of building projects
- Multiple lending partners: We shop your loan to find competitive rates and terms
- Streamlined process: Clear documentation checklists and proactive communication
- Flexible solutions: Options for various credit profiles and project types
Frequently Asked Questions
Can I combine land purchase and construction loan into one?
Yes, one-time close construction loans are specifically designed to combine land purchase, construction financing, and permanent mortgage into a single loan with one closing. This saves money and simplifies the process.
What is the minimum down payment for a combined land and construction loan?
Down payments typically range from 10-20% for conventional combined loans. FHA one-time close loans allow down payments as low as 3.5%, while VA construction loans offer 0% down for eligible veterans.
How long does a combined loan take to close?
Expect 45-60 days from complete application to closing. Combined loans take longer than standard mortgages due to construction plan reviews, contractor verification, and as-completed appraisals.
Can I use a combined loan for investment property?
Yes, many lenders offer combined land + construction loans for investment properties, though down payment requirements are typically higher (20-25%) and rates may be slightly higher than owner-occupied options.
What happens if construction takes longer than expected?
Most combined loans include construction periods of 12-18 months. If you need more time, contact your lender before the period expires. Extensions are often available but may involve additional fees.
Do I need a contractor for a combined loan?
Most lenders require licensed, bonded, and insured general contractors. Some allow owner-builder arrangements, but these typically require construction experience and higher down payments.
Take the Next Step
Combining your land purchase with construction financing streamlines the building process and saves thousands in closing costs. With one-time close options available for residential and commercial projects, there's no reason to manage multiple separate loans.
The key is preparation: get pre-qualified before shopping for land, finalize your construction plans early, and work with a lender experienced in combined financing.
Ready to explore your options? Contact Clear House Lending to discuss your project and get pre-qualified for combined land + construction financing. Our team will help you understand your budget, compare options, and find the right solution.
Have land under contract and construction plans ready? Apply for financing today and take the first step toward building your project with streamlined one-time close financing.