The quick answer

New-construction financing must account for a longer timeline, an unfinished property, builder or contractor requirements, appraisal plans and specifications, construction draws and the transition to permanent financing. A production home completed by a builder may use an ordinary purchase mortgage at the end; a custom build often needs construction-to-permanent financing.

Production builder versus custom build

With a production builder, the builder often owns the lot and funds construction. The buyer typically closes after completion, although deposits, incentives and long rate-lock decisions require early planning.

With a custom build, the borrower may own or buy the lot and use loan proceeds through controlled draws. The lender evaluates the borrower, builder, plans, budget, contract, appraisal and project feasibility.

Single-closing and two-closing structures

Fannie Mae recognizes single-closing and two-closing construction-to-permanent transactions. In a single closing, construction and permanent terms are established in one transaction and the loan converts after completion. In a two-closing structure, interim construction financing and the permanent mortgage close separately.

Available structures, modification procedures, rate treatment and requalification rules vary by lender and program.

What happens before construction

A realistic budget matters. Upgrades, site work, permitting, utilities and overruns can affect the amount of cash needed.

  • Review income, credit, assets and reserve requirements.
  • Verify land ownership, liens and acquisition terms.
  • Approve the builder or contractor when required.
  • Provide plans, specifications, contract, budget and timeline.
  • Complete an appraisal based on the proposed finished home.
  • Understand contingency funds, draw inspections and change-order rules.

During the build

Construction proceeds are usually released in stages after documented work and inspections. Borrowers should know who approves draws, whether interest is charged on funds already advanced, how taxes and insurance are handled and what happens when the schedule changes.

Avoid new debt, unexplained asset movements or employment changes without discussing them. A permanent closing or conversion can still depend on final documentation and completed-property conditions.

Northeast Florida planning points

In Duval, Clay and St. Johns counties, the final payment can be affected by homeowners insurance, flood requirements, HOA dues and CDD assessments. Site preparation, drainage, septic or well work and coastal wind considerations may also influence the budget.

Obtain current local estimates rather than relying on a nearby home’s costs. Property-specific information should be verified with the insurer, builder, local authority and lender.