How a single-close construction loan works
The loan closes before construction begins. Funds are advanced through inspected draws as work is completed. During construction, payment treatment is based on the terms of the loan; after the build, it converts to permanent financing without a second traditional mortgage closing.
What is reviewed
Expect review of the borrower, land or lot, builder, signed construction agreement, plans, specifications, budget, timeline, permits, contingency and an appraisal based on the proposed completed home.
Land equity and lot acquisition
Owned-land equity may contribute to the transaction, depending on valuation, liens and program rules. A lot purchase can sometimes be incorporated into the construction financing. The sequence matters, so review it before buying land.
Draws, changes and contingencies
The builder is paid in stages after inspections. Change orders can pressure both budget and appraisal support. A realistic contingency is a risk-control tool, not wasted money.
The 5% down question
LMCU may offer construction-to-permanent financing with as little as 5% down for qualifying transactions. Availability depends on borrower qualifications, property type, completed value, builder and project approval, so the structure must be reviewed before relying on it.
Common failure points
Choosing a builder before checking approval requirements, under-budgeting site work, leaving selections out of specifications, assuming upgrades automatically increase appraised value, and changing plans without updating lender documentation.
Prepare the project before choosing the loan
Construction and renovation financing succeeds when the scope, participants and numbers agree. An early feasibility review can prevent spending time and money on a project the financing cannot support.
- Land status, purchase price and existing liens
- Builder or contractor, plans, specifications and contract
- Line-item budget, contingency and expected timeline
- Estimated completed value and comparable properties
- Temporary housing, carrying costs and change-order plan
| Phase | What happens | What can delay it |
|---|---|---|
| Plan | Budget, plans, builder and land are reviewed | Incomplete specs or unresolved site costs |
| Approve | Borrower, builder and proposed value are underwritten | Credit, appraisal or builder documentation |
| Build | Funds are released through draws | Inspection, lien or change-order issues |
| Convert | Loan moves into permanent phase | Incomplete work or final documentation |
Frequently asked questions
Can land equity count toward the down payment?+
It may, depending on current value, acquisition history, liens and program rules. Review the lot before assuming how much equity is usable.
Who approves the builder?+
The lender reviews the builder’s experience, licensing, insurance, financial information and project documentation under its construction program.
What happens when the project exceeds budget?+
The borrower usually remains responsible for approved overruns. Contingency funds and disciplined change-order controls help protect the project.
Do construction loans require two closings?+
A single-close construction-to-permanent structure combines construction and permanent financing, while other structures may require a later closing.