Construction to Permanent Loan Requirements 2026

Building your dream home requires more than just blueprints and a contractor - it demands the right financing structure. A construction to permanent loan combines your building costs and mortgage into one package, but the requirements can vary significantly based on which type you choose.

This guide breaks down exactly what you need to qualify for a construction to permanent loan in 2026, including the critical decision between one-time close and two-time close options. Understanding these requirements upfront can save you thousands and prevent costly surprises during your build.

What Is a Construction to Permanent Loan and How Does It Work?

A construction to permanent loan finances both the building phase and long-term mortgage of your new home. Unlike traditional mortgages for existing properties, these loans fund construction in stages called draws as your builder completes milestones.

The key advantage is avoiding two separate loans. With a construction to perm loan, you close once and your construction financing automatically converts to a permanent mortgage when building wraps up.

During construction, you typically make interest-only payments on the amount drawn. Once complete, the loan converts to a standard amortizing mortgage with principal and interest payments.

There are two main structures for construction to permanent financing:

One-Time Close (Single Close): You close once before construction begins. Your permanent mortgage rate is locked upfront, and the loan automatically converts without additional paperwork or fees.

Two-Time Close: You close twice - once for the construction loan, then again for the permanent mortgage after building completes. This requires requalification and paying closing costs twice.

What Credit Score Do You Need for a Construction to Permanent Loan?

Credit requirements vary significantly based on the loan program you choose. Here is what lenders typically require:

FHA One-Time Close: Minimum 580 credit score with 3.5% down payment. Scores between 500-579 require 10% down. FHA loans are more forgiving of past credit issues but require mortgage insurance for the life of the loan.

VA One-Time Close: The VA does not set a minimum credit score, but most lenders require 620-640. Veterans with lower scores may still qualify with compensating factors like low debt-to-income ratios or significant reserves.

Conventional One-Time Close: Most lenders require 680 or higher, with the best rates reserved for borrowers with scores above 740. Conventional loans offer more flexibility on mortgage insurance cancellation.

Jumbo Construction Loans: For loan amounts exceeding $832,750 (the 2026 conforming limit), expect minimum scores of 700-720 with some lenders requiring 740 or higher.

Your credit score also affects your interest rate. A borrower with a 760 score might get a rate 0.5% to 1% lower than someone at 680 - translating to significant savings over a 30-year term.

How Much Down Payment Do You Need for Each Loan Type?

Down payment requirements represent one of the biggest differences between construction to permanent loan programs. Your choice can mean the difference between $0 down and 25% of your project cost.

FHA One-Time Close: Requires just 3.5% down payment with a credit score of 580 or higher. This is one of the most accessible options for borrowers with limited savings. The FHA also allows gift funds from family members to cover the down payment.

VA One-Time Close: Offers true zero-down financing for eligible veterans, active-duty service members, and some surviving spouses. VA loans also skip private mortgage insurance, though there is a funding fee (which can be rolled into the loan).

Conventional One-Time Close: Down payment requirements range from 5% to 20% depending on the lender and your credit profile. Putting down less than 20% triggers private mortgage insurance, but you can cancel it once you reach 20% equity.

Two-Time Close Options: Generally require 10% to 25% down for the construction phase, with the permanent loan having its own requirements based on the product you choose.

For a $400,000 construction project, here is what you would need upfront:

• FHA: $14,000 (3.5%)
• VA: $0
• Conventional (5%): $20,000
• Conventional (20%): $80,000

Beyond the down payment, most lenders require 5-10% contingency reserves to cover unexpected construction costs. This is separate from your down payment and post-closing reserves.

Use our construction loan calculator to estimate your total upfront costs based on your specific project.

What Are the Income and Debt Requirements?

Lenders evaluate your ability to repay based on income documentation and debt-to-income (DTI) ratios. Here is what to expect:

Debt-to-Income Ratios:

• FHA allows DTI up to 50% with compensating factors
• VA has no strict DTI limit but typically caps around 41%
• Conventional loans generally require 43% or lower DTI
• Jumbo loans often require 36% or lower

Income Documentation Required:

• Two years of tax returns (personal and business if self-employed)
• Two to three months of bank statements
• 30 days of recent pay stubs
• W-2s or 1099s for the past two years
• Verification of employment letter

Reserve Requirements: Construction loans typically require higher reserves than standard mortgages. Expect lenders to verify you have 6-12 months of mortgage payments in liquid assets after closing. Some lenders require 12 months or more for jumbo loans.

Self-employed borrowers face additional scrutiny. Lenders want to see stable or increasing income over two years, and they may average your earnings to calculate qualifying income.

What Documents Does Your Builder Need to Provide?

Your construction to permanent loan is only as strong as your builder qualifications. Lenders carefully vet contractors to protect their investment.

Builder Requirements:

• Valid contractor license for your state
• Certificate of liability insurance (typically $1M or more)
• Workers compensation insurance
• Two or more years of home building experience
• Financial statements or proof of stability
• References from recent projects
• Builder risk insurance for the project

Project Documentation:

• Complete construction plans and blueprints
• Detailed cost breakdown and budget
• Fixed-price construction contract
• Project timeline with milestones
• Specifications for materials and finishes

The lender will order an appraisal based on the plans and specifications to determine the projected completed value. Your loan amount is based on this future value, not current land value.

FHA and VA loans have additional builder requirements. The FHA requires contractors to have at least two years of experience building homes and meet specific licensing and insurance thresholds.

How Long Does the Construction Phase Last?

Most construction to permanent loans allow 12 months for the construction phase. This timeline starts from your closing date and includes all building activities through final inspection.

Typical Timeline:

• Pre-qualification and approval: 3-6 weeks
• Project approval and appraisal: 2-4 weeks
• Closing: 1-2 weeks
• Construction: 6-12 months
• Conversion to permanent: Immediate (one-time close) or 2-4 weeks (two-time close)

What Happens If Construction Takes Longer?

If your build extends beyond 12 months, options depend on your loan type:

• Some lenders offer 3-6 month extensions for a fee
• Extension may require rate re-lock at current market rates
• Exceeding extension period could require refinancing
• Two-time close loans may offer more flexibility

Weather delays, permit issues, and supply chain problems can all extend timelines. Discuss contingency plans with your lender before closing.

For commercial projects with longer timelines, explore our commercial construction loan options.

What Is the Difference in Closing Costs Between One-Time and Two-Time Close?

The closing cost difference between loan types is substantial - often $3,000 to $10,000 or more on a typical project.

One-Time Close Costs:

• Single appraisal fee: $500-$800
• Single title insurance and search: $1,000-$2,500
• Single origination fee: 0.5%-1% of loan amount
• Single recording fees: $100-$500
• Builder inspection fees: $400-$800 total
• Total: typically 2%-5% of loan amount, paid once

Two-Time Close Costs:

• Two appraisals: $1,000-$1,600
• Two title policies: $2,000-$5,000
• Two origination fees: 1%-2% of loan amount
• Two sets of recording fees: $200-$1,000
• Builder inspections: $400-$800
• Total: 4%-10% of project cost across both closings

For a $400,000 construction project:

• One-time close: $8,000-$20,000 total
• Two-time close: $16,000-$40,000 total

The one-time close structure provides clear cost savings. However, some borrowers accept higher costs with two-time close loans to gain flexibility in shopping for permanent financing.

Ready to explore your options? Contact our construction loan specialists to get a detailed cost comparison for your project.

When Should You Choose One-Time Close Over Two-Time Close?

The decision between one-time close and two-time close depends on your financial situation, risk tolerance, and project specifics.

Choose One-Time Close When:

You want rate protection: Your permanent mortgage rate locks before construction begins. If rates rise during your 6-12 month build, you are protected. In a rising rate environment, this protection alone can save thousands.

You prefer simplicity: One application, one approval, one closing. Less paperwork and fewer opportunities for delays or complications.

You want to avoid requalification risk: Life happens during construction. If your income drops, you change jobs, or your credit score dips, a two-time close loan puts your permanent financing at risk.

Your project is straightforward: Standard construction timelines of 12 months or less work well with one-time close structures.

Choose Two-Time Close When:

You expect rates to fall: If you believe rates will decline during construction, a two-time close lets you lock a lower permanent rate after building.

Your project is complex: Custom homes with potential design changes or extended timelines may need the flexibility two-time close offers.

You want to shop lenders: Two-time close lets you work with one lender for construction and shop for the best permanent mortgage terms afterward.

You have very strong financials: If requalification risk is minimal because of stable, high income and excellent credit, two-time close flexibility may outweigh the added costs.

How Do Interest Rates Compare Between Loan Types?

Construction to permanent loan rates typically run 0.5% to 1% higher than standard 30-year mortgage rates. This premium reflects the additional risk lenders take during the construction phase.

One-Time Close Rates:

• Generally 0.25%-0.5% higher than two-time close construction rates
• Permanent rate locked upfront before construction
• Rate stays fixed for full 30-year term after conversion
• Provides certainty but less flexibility

Two-Time Close Rates:

• Construction phase rate may be lower initially
• Often uses adjustable rate during building
• Permanent rate determined at second closing
• Rate risk if market rises during construction

Current Rate Factors: Rate differences depend on credit score, down payment, loan type, and market conditions. FHA and VA loans often have lower rates than conventional due to government backing.

For commercial construction projects, rates vary more significantly based on project type and borrower experience. See our construction loan interest rate guide for detailed rate comparisons.

What Are Common Reasons Construction Loans Get Denied?

Understanding why applications fail helps you prepare a stronger file. Common denial reasons include:

Credit Issues:

• Score below minimum thresholds
• Recent late payments or collections
• High credit utilization
• Recent bankruptcy or foreclosure

Income Problems:

• DTI ratio too high
• Self-employment income declining
• Job changes during application
• Insufficient documentation

Builder Concerns:

• Contractor not licensed or insured
• Insufficient building experience
• Poor references or reputation
• Financial instability

Project Issues:

• Budget unrealistic for market
• Plans incomplete or non-compliant
• Land issues or title problems
• Appraisal comes in low

Reserve Shortfalls:

• Insufficient post-closing reserves
• Lack of contingency funds
• Down payment from unacceptable sources

Work with an experienced construction lender who can identify potential issues early and guide you toward solutions.

How Can You Strengthen Your Construction Loan Application?

Take these steps before applying to improve your approval odds and secure better terms:

Boost Your Credit Score:

• Pay down credit card balances below 30% utilization
• Dispute any errors on credit reports
• Avoid opening new accounts before applying
• Keep old accounts open for credit history length

Reduce Your DTI:

• Pay off or pay down existing debts
• Avoid taking on new obligations
• Consider paying off car loans or personal loans
• Wait to make major purchases until after closing

Build Your Reserves:

• Save at least 12 months of mortgage payments
• Add 10% contingency for construction overruns
• Document all deposit sources clearly
• Avoid large cash deposits without paper trails

Choose Your Builder Carefully:

• Verify all licenses and insurance
• Check references thoroughly
• Review past projects in person
• Get detailed, fixed-price contract

Prepare Documentation Early:

• Gather two years of tax returns
• Organize bank statements
• Get employment verification ready
• Compile builder documentation

Contact Clear House Lending to discuss your construction financing options with specialists who understand the requirements for your situation.

What Are the Steps to Get Approved for a Construction to Permanent Loan?

Here is the typical process from application to conversion:

Step 1: Pre-Qualification (1-2 Weeks) Provide basic financial information to get pre-qualified. This gives you a target loan amount and identifies any issues to address before formal application.

Step 2: Choose Your Builder and Finalize Plans Select a qualified builder, finalize construction plans, and get a detailed budget and fixed-price contract.

Step 3: Formal Application (2-4 Weeks) Submit complete documentation including financials, builder information, and project details. Lender orders appraisal based on plans.

Step 4: Underwriting and Approval Underwriter reviews all documentation, verifies information, and issues loan approval with conditions.

Step 5: Closing Sign loan documents and close on construction and permanent financing together (one-time close) or just construction financing (two-time close).

Step 6: Construction Phase (6-12 Months) Builder draws funds as milestones complete. Lender inspects before releasing each draw. You make interest-only payments on amounts drawn.

Step 7: Conversion to Permanent (Immediate or 2-4 Weeks) One-time close loans convert automatically. Two-time close requires second application, approval, and closing.

What Should You Ask Your Lender Before Applying?

Get clear answers to these questions before choosing a construction to permanent loan program:

1. What is the minimum credit score and down payment for your program?
2. What are the current interest rates for construction and permanent phases?
3. Can I lock my permanent rate before construction begins?
4. What happens if construction takes longer than 12 months?
5. What are the total closing costs and fees?
6. What builder requirements must be met?
7. What reserve requirements apply?
8. How long is the rate lock period?
9. What DTI limits apply to my situation?
10. How quickly can we close once approved?

The answers will help you compare lenders and choose the right program for your needs.

Ready to Start Your Construction Loan Application?

Qualifying for a construction to permanent loan requires preparation across credit, income, down payment, and project documentation. Whether you choose one-time close for simplicity and rate protection or two-time close for flexibility, understanding requirements upfront sets you up for success.

Clear House Lending specializes in construction financing for builders and investors. Our team can help you navigate requirements, compare loan options, and structure the right financing for your project.

Get pre-qualified today to learn which construction to permanent loan program fits your situation. We will provide a detailed breakdown of requirements, costs, and timeline specific to your project.

For additional resources, explore our construction loan down payment guide and fixed rate construction loan options.