Construction Loan to Permanent Mortgage: A Step-by-Step Guide for Henrico County Homebuilders

Written by Duane Buziak, NMLS #1110647 | Coast2Coast Mortgage LLC NMLS #376205

Building a custom home in Henrico County — whether on a lot in Wyndham, along the River Road corridor, or in a new pocket development near Twin Hickory — is one of the most significant financial undertakings a family can make. Unlike buying an existing home, building from the ground up requires a two-phase financing strategy: a construction loan that funds the build, followed by a permanent mortgage that replaces it once the certificate of occupancy is issued.

Many Henrico buyers are surprised to learn these are two distinct financial products with different approval criteria, rate structures, and timelines. How you handle the conversion between them can affect your rate, your equity, and your monthly payment for decades.

This guide walks you through every step of the construction loan to permanent mortgage process — from qualifying before a single foundation is poured to locking your permanent rate after the final inspection. As a licensed mortgage broker serving Henrico County since 2014, Duane Buziak accesses wholesale pricing across multiple lenders to find construction-to-perm programs that a single-shelf direct lender simply cannot offer.

If you want to explore your options without affecting your credit score, a NoTouch Credit Pull pre-qualification is the right starting point. Read on for the full step-by-step breakdown.

Step 1: Understand the Two-Phase Structure Before You Break Ground

The construction loan to permanent mortgage process works in two distinct phases, and understanding both before you sign anything is essential. Skipping this foundational knowledge is one of the most common — and costly — mistakes Henrico homebuilders make.

Phase One: The Construction Loan. During the build, you carry a construction loan. This is not a traditional mortgage. It is an interest-only credit facility where funds are disbursed in stages — called draws — as construction milestones are confirmed by inspection. Typical draw milestones include foundation completion, framing, rough-in (plumbing and electrical), drywall, and final completion. You pay interest only on the funds actually disbursed, not the full loan amount, which keeps your carrying costs manageable during the build.

Phase Two: The Permanent Mortgage. Once Henrico County issues a certificate of occupancy, the construction loan is paid off and replaced by a standard amortizing mortgage. This is the loan you will carry for the life of the home. The rate, term, and payment structure of your permanent mortgage are entirely separate from the construction loan that preceded it.

One-Time-Close vs. Two-Close Programs. Here is where the structure matters most. A one-time-close construction-to-perm loan involves a single closing, one set of closing costs, and an automatic conversion to the permanent mortgage at completion. A two-close structure means you close on the construction loan first, then originate a brand-new mortgage at completion — with a second set of closing costs and a full new underwrite. Each approach has trade-offs depending on your rate expectations and build timeline.

Worked Dollar Example: $650,000 Custom Build in Wyndham. Assume a $650,000 construction loan at a variable rate of 7.5% during a 12-month build. Draw disbursements happen in five stages. At the midpoint of construction, approximately $325,000 has been disbursed. Your interest-only payment at that stage: roughly $2,031 per month. At full disbursement of $520,000 (the construction loan amount, with 20% equity from land and down payment), your monthly interest-only payment rises to approximately $3,250. At conversion to a 30-year permanent conventional mortgage at 7.0% on the $520,000 balance, your principal and interest payment becomes approximately $3,461 per month.

Broker Advantage. A wholesale mortgage broker accesses construction-to-perm programs from multiple wholesale lenders. A single-shelf direct lender can only offer what their one program shelf carries. This distinction is critical when construction timelines run long, appraisals come in below budget, or rates shift during the build.

Compliance Note: Conventional permanent mortgage maximum LTV at conversion is 90%. VA-eligible veterans can access 100% LTV on VA construction-to-perm loans.

Step 2: Get Pre-Qualified Before You Sign a Builder Contract

Construction loan pre-qualification is meaningfully more complex than a standard purchase pre-qual. Lenders evaluate three things simultaneously: the borrower’s financial profile, the builder’s qualifications and track record, and the project plans themselves. All three must pass before a commitment is issued.

This is why getting pre-qualified before you sign a builder contract is not optional — it is protective. Signing a builder contract without confirmed financing puts your deposit at risk if the construction loan falls through.

NoTouch Credit Pull Advantage. Henrico buyers can get a meaningful pre-qualification without triggering a hard inquiry on their credit report. This matters when you are still shopping builders and comparing programs. Multiple hard pulls in a short window can lower your score and complicate the full application later. A NoTouch Credit Pull lets you understand your qualifying position without that risk.

Key Qualification Criteria for Construction-to-Perm Loans. Credit score thresholds for construction-to-perm programs are typically higher than for standard purchase mortgages. Debt-to-income ratios are evaluated carefully, with most programs requiring reserves beyond the down payment — often three to six months of future mortgage payments held in liquid accounts. If you already own the lot free and clear, or with significant equity, that equity may count toward your down payment requirement. A broker can identify which wholesale programs allow land equity to satisfy part or all of the down payment — this is a meaningful advantage for buyers who purchased a lot in Glen Allen or along the River Road corridor before beginning the build.

Documents You Will Need at This Stage. Gather these before your pre-qualification appointment: two years of federal tax returns, W-2s or 1099s for all income sources, two to three months of bank statements, a builder contract or signed letter of intent, a construction timeline, and plans or specs if they are available. Having these organized in advance accelerates the process significantly.

Common Pitfall. Many Henrico buyers fall in love with a builder, sign a contract, and then discover their financing does not support the project as structured. Builder deposits in the Short Pump and Innsbrook new-construction corridors can run into the tens of thousands of dollars. Losing that deposit because the construction loan was not confirmed first is an avoidable outcome. Pre-qualify first. Sign second.

Step 3: Select Your Builder and Lock Your Construction Loan

Not every builder qualifies with every construction loan program, and this surprises many first-time custom homebuilders. Wholesale lenders and their programs have specific builder approval requirements that go beyond simply holding a contractor’s license.

Builder Approval Requirements. To satisfy most construction-to-perm programs, your builder must hold a valid contractor’s license in Virginia, carry general liability insurance and workers’ compensation coverage, maintain a builder’s risk policy on the project, and demonstrate a verifiable track record of completed projects. Some programs require a minimum number of completed homes or a minimum number of years in business. A broker working across multiple wholesale channels can match your specific builder to a program that accepts their profile — rather than forcing you to choose a different builder because one lender’s program is too restrictive.

Construction Loan Rate Structure. During the build phase, construction loan rates are typically variable, tied to an index such as the Prime Rate. Understand how rate movement during your build affects your total carrying cost. On a 12-month build in Wyndham, a 50-basis-point rate increase mid-build adds meaningful interest expense that was not in your original budget.

Draw Schedule Mechanics: Continued Dollar Example. On the $650,000 Wyndham build with a $520,000 construction loan, a five-draw schedule might look like this:

1. Foundation complete: $104,000 disbursed (20% of loan). Interest-only payment: approximately $650/month at 7.5%.

2. Framing complete: Additional $130,000 disbursed, total $234,000. Interest-only payment: approximately $1,463/month.

3. Rough-in complete: Additional $104,000, total $338,000. Interest-only payment: approximately $2,113/month.

4. Drywall and interior: Additional $104,000, total $442,000. Interest-only payment: approximately $2,763/month.

5. Final completion: Remaining $78,000, total $520,000. Interest-only payment: approximately $3,250/month.

Each draw requires an inspection confirming milestone completion. Understand who orders those inspections, who pays for them, and what the turnaround time is — delays in inspection scheduling can slow your draw timeline.

Contingency Reserve. Most construction-to-perm programs require a 5% to 10% contingency reserve held back from the construction loan for cost overruns. On a $520,000 construction loan, a 10% contingency means $52,000 is held in reserve. Factor this into your total project budget from the beginning, not as an afterthought.

Build Timeline Warning. In the Glen Allen and Short Pump new-construction corridors, build timelines frequently extend beyond initial estimates due to permitting delays, subcontractor availability, and material lead times. Confirm your construction loan term allows for extensions, and understand the cost of those extensions before you close.

Step 4: Manage the Build Phase and Protect Your Qualifying Profile

The months between construction loan closing and permanent mortgage conversion are a financial discipline period. Your permanent mortgage will require a full re-underwrite at conversion — meaning your income, employment, credit, and assets will all be verified again as if you are applying for the first time.

What Not to Do During the Build. Do not open new credit accounts. Do not make large undocumented deposits into your bank accounts. Do not change employers or shift from W-2 employment to self-employment. Each of these actions can complicate or delay your permanent mortgage underwriting at conversion. This is not the time to finance new furniture or a vehicle, even if the builder’s model home has you excited about interior upgrades.

Monitor Your Credit Profile. The permanent mortgage approval is a separate underwriting event. Any derogatory items that appear between your construction close and your permanent close — a missed payment, a collection account, a significant increase in credit utilization — can jeopardize the conversion. Review your credit report periodically during the build. If issues arise, address them early. Buyers who need to address profile issues before conversion should speak with a broker who can connect them with appropriate credit restoration resources well in advance of the conversion date.

Appraisal Risk During the Build. Your construction loan was approved based on an “as-completed” appraised value — what the home is projected to be worth when finished. If material costs rise significantly during the build, or if local market conditions shift, the completed home may appraise below that original projected value. This affects your LTV at conversion. If the final appraisal comes in lower than projected, you may need to bring additional cash to close in order to hit the required LTV threshold for your permanent mortgage program.

Change Order Management. Every change order increases your contract price. Track cumulative change orders carefully against your contingency reserve and against the original appraised value. If your change orders push the total project cost above the original appraised value, you are building equity on paper that the lender may not be able to finance. A broker who understands the Henrico County market can help you think through the appraisal implications of significant change orders before you approve them.

Escrow Considerations. Once your permanent mortgage closes, your lender will establish an escrow account for property taxes and homeowner’s insurance. Henrico County property tax rates and insurance costs for new construction should be factored into your long-term budget. Speak with your broker about how escrow is structured at permanent close so there are no surprises at your first payment.

Step 5: Trigger the Conversion — From Construction to Permanent Mortgage

The conversion from construction loan to permanent mortgage is triggered by one document: the certificate of occupancy issued by Henrico County. This is the official government confirmation that the home is safe, code-compliant, and habitable. Without it, no permanent mortgage can close.

One-Time-Close vs. Two-Close Conversion Mechanics. If you used a one-time-close construction-to-perm structure, the loan converts automatically per the terms of your original agreement. There is no second closing, no second application, and typically no second set of full closing costs. If you used a two-close structure, you are now originating a brand-new mortgage. That means a new application, new underwriting, new appraisal, and a second full set of closing costs. The trade-off: two-close structures offer more flexibility to shop rates at conversion, which matters when rates have moved during your build.

Rate Lock Strategy at Conversion. Rate movement during a 12-month build is real. A broker with access to multiple wholesale lenders can shop your permanent rate at conversion across programs and find the most competitive pricing available that day. A single-shelf direct lender can only offer their current rate on their one program — you take it or you refinance later, at additional cost.

Worked Dollar Example: Rate Movement Impact. On the $650,000 Wyndham build, the permanent mortgage is a $520,000 30-year conventional loan. At a 7.0% rate, principal and interest is approximately $3,461 per month. If rates moved up 75 basis points during the build and you convert at 7.75%, that same $520,000 loan carries a payment of approximately $3,723 per month — a difference of $262 per month, or $3,144 per year, every year for the life of the loan. Over 10 years, that rate movement costs more than $31,000. Broker access to multiple wholesale programs at conversion is not a small advantage.

Down Payment and LTV at Conversion. Confirm the final appraised value of the completed home, confirm the remaining construction loan balance, and calculate your LTV. If LTV exceeds 80% on a conventional loan, private mortgage insurance applies, adding to your monthly payment. Conventional permanent mortgage maximum LTV is 90%. If your LTV at conversion is above that threshold, you will need to bring cash to the table.

VA Conversion Note. Eligible veterans building in Henrico County can use a VA construction-to-perm loan. VA cash-out is available at 100% LTV, and VA loans carry no PMI requirement. Confirm your VA entitlement is in order before the build begins. Speak with Duane Buziak about VA construction-to-perm eligibility and how to structure the loan to maximize your benefit.

Step 6: Complete Final Underwriting and Close Your Permanent Mortgage

Final underwriting for the permanent mortgage is thorough, and the documentation requirements are specific. Having everything organized in advance prevents delays that can push your closing date and extend the period you are carrying the construction loan at its higher variable rate.

Final Underwriting Checklist. Your lender will require: updated income documentation (pay stubs, W-2s, or tax returns depending on your income type), updated bank statements, the certificate of occupancy issued by Henrico County, a final appraisal or final inspection report, a title update confirming a construction lien search, and the builder’s final lien waiver. Each of these must be in the file before underwriting can issue a clear-to-close.

Title and Lien Release. During construction, subcontractors and material suppliers have the legal right to file mechanic’s liens against the property if they are not paid. The title company must confirm that all mechanic’s liens have been released before the permanent mortgage can close. This is non-negotiable and non-waivable. If your builder has outstanding disputes with subcontractors, those must be resolved — or a hold-back escrow established — before your permanent close. Do not underestimate this step. Unresolved liens can delay closing by weeks.

Closing Cost Structure at Permanent Conversion. In a two-close structure, expect a full second set of closing costs: origination, title, recording fees, and prepaid items. In a one-time-close structure, confirm exactly what fees apply at conversion. Some programs charge a conversion fee in lieu of full closing costs. Depending on the program and rate selected, no-out-of-pocket closing options may be available — speak with your broker about whether rolling costs into the rate makes sense given your long-term plans for the home.

Final Walk-Through and Punch List. Do not close your permanent mortgage until all punch-list items are resolved, or until a hold-back escrow is formally established for any outstanding items. Once you convert to the permanent mortgage, your financial leverage over the builder diminishes considerably. Builders are motivated to address punch-list items before the final draw is released — after conversion, that motivation changes. Protect yourself by making punch-list resolution a condition of your permanent close.

Post-Close Setup. After closing, your escrow account will be established for Henrico County property taxes and homeowner’s insurance. Confirm your first payment due date — it is typically 30 to 45 days after closing, but verify with your servicer. Set up autopay immediately to protect the credit profile you worked to maintain throughout the entire build process.

Your Construction-to-Perm Checklist and Next Steps

Here is your quick-reference checklist for the full construction loan to permanent mortgage process in Henrico County:

1. NoTouch Credit Pull pre-qualification before signing any builder contract.

2. Builder approval confirmed with your construction loan program.

3. Construction loan closed with draw schedule and contingency reserve in place.

4. Draw schedule managed through all build milestones with inspections confirmed.

5. Credit profile protected throughout the build — no new accounts, no employment changes, no large undocumented deposits.

6. Certificate of occupancy issued by Henrico County.

7. Permanent mortgage underwriting completed with all final documentation.

8. Lien release confirmed by title company.

9. Permanent mortgage closed; escrow established; first payment date confirmed.

Broker vs. Single-Shelf Summary. A wholesale mortgage broker working in Henrico County since 2014 can shop your permanent mortgage at conversion across multiple wholesale programs on the same day, finding the most competitive rate and terms available. A single-shelf direct lender is locked to one program at whatever rate they offer that day. When rates have moved 75 basis points during your build, that access difference translates directly into your monthly payment for the next 30 years.

8 Questions Henrico Homebuilders Ask About Construction-to-Perm Loans

1. What credit score do I need for a construction-to-perm loan? Most construction-to-perm programs require a minimum credit score of 680 to 720, with stronger scores qualifying for better rate tiers. VA construction-to-perm programs may have different thresholds. A NoTouch Credit Pull pre-qualification will identify where you stand without affecting your score.

2. How long does a construction loan last? Most construction loans are structured for 12 months, with some programs allowing extensions of three to six months for builds that run long. Extension fees apply. Confirm the extension terms before closing your construction loan, especially if you are building in the Glen Allen or Short Pump corridors where permitting timelines can be unpredictable.

3. What happens if the home appraises lower than expected at completion? If the final appraisal comes in below the projected as-completed value, your LTV at conversion increases. You may need to bring additional cash to close to satisfy the program’s LTV requirements. Conventional permanent mortgages max at 90% LTV. A broker can help you evaluate options across programs if this situation arises.

4. Can I use a VA loan for construction in Henrico County? Yes. Eligible veterans can use a VA construction-to-perm loan to build in Henrico County. VA cash-out is available at 100% LTV and VA loans carry no PMI requirement. Confirm your VA entitlement is in order before beginning the process. Speak with Duane Buziak at 804-212-8663 about VA construction-to-perm eligibility.

5. What is a draw schedule and how does it work? A draw schedule is the plan for disbursing construction loan funds in stages as verified milestones are completed. Each draw requires an inspection confirming the milestone. Funds are released after the inspection is approved. You pay interest only on disbursed funds, not the full loan amount, during the construction phase.

6. Do I need two appraisals — one for the construction loan and one for the permanent mortgage? In most cases, yes. The construction loan is based on an as-completed appraisal at the start. The permanent mortgage typically requires a final appraisal or final inspection at conversion to confirm the completed value. In a one-time-close structure, the conversion appraisal requirements vary by program — confirm with your broker before closing.

7. What is a certificate of occupancy and why does it matter? A certificate of occupancy (CO) is an official document issued by Henrico County confirming that the completed home meets all building codes and is safe for habitation. It is the legal trigger for permanent mortgage conversion. No CO means no permanent mortgage close. Coordinate with your builder to ensure the final inspection and CO issuance are on the project timeline.

8. Can I roll closing costs into the permanent mortgage? Depending on the program and the rate selected, no-out-of-pocket closing options may be available at permanent conversion. This typically involves accepting a slightly higher rate in exchange for lender credit covering closing costs. Whether this makes sense depends on how long you plan to keep the loan. A broker can model both scenarios — costs paid upfront vs. rolled into the rate — so you can make an informed decision.

Putting It All Together: Your Path From Groundbreaking to Permanent Close

The construction loan to permanent mortgage process in Henrico County has more moving parts than a standard home purchase — but it is entirely manageable when you understand the structure, prepare your documentation, and work with a broker who has access to the wholesale programs that fit your specific build.

The two-phase structure is the foundation of everything: a construction loan that funds the build through staged draws, followed by a permanent mortgage that replaces it when Henrico County issues your certificate of occupancy. How you handle the conversion between those two phases — particularly if rates have moved during your build — determines a significant portion of your long-term housing cost.

Broker access to multiple wholesale lenders at conversion is not a minor convenience. It is a structural advantage that a single-shelf direct lender cannot replicate. Duane Buziak has been helping Henrico County families navigate this process since 2014, with deep familiarity with the Wyndham, Glen Allen, Short Pump, and Twin Hickory markets and the Henrico County permitting and CO process that governs every conversion.

Ready to start? Get pre-qualified today with a no-credit-impact NoTouch Credit Pull and find out exactly what your construction-to-perm options look like — before you sign a builder contract, before you break ground, and before rates have a chance to move on you. Or call directly at 804-212-8663 to speak with Duane Buziak about your specific project.