Construction-to-Permanent Loans: The Standard Path

How It Works

A construction-to-permanent loan covers the construction phase as a line of credit — funds are drawn in stages as construction milestones are hit — and then automatically converts to a standard fixed-rate or adjustable-rate mortgage upon completion and occupancy. The key advantage: one set of closing costs rather than two separate closings. You close once at the start of construction and the loan converts when you move in.

What Lenders Need

Construction lenders require more documentation than purchase lenders. Expect to provide: complete building plans and specifications, a signed contract with a licensed builder, a lot purchase agreement or deed, a detailed construction budget with timeline, and the builder's license and insurance. The appraiser evaluates plans-and-specs to establish the as-completed value — this is the figure that determines how much the lender will lend.

Down Payment and Rates

Construction-to-permanent loans typically require 10–20% down and carry interest rates modestly higher than standard purchase loans during the construction phase. Once converted, the permanent mortgage rate is set at current market rates at the time of conversion. In a rate environment where rates may shift during an 18-month construction project, understanding the rate lock mechanism with your specific lender is important.

USDA Rural Development: The Zero-Down Option

Who Qualifies

USDA Rural Development Section 502 loans are available for buyers whose household income falls within USDA limits for the area and who are purchasing or building in eligible rural areas. Juneau County has extensive USDA-eligible rural territory — most areas outside the Mauston city limits qualify. Income limits for Juneau County are more generous than for urban markets, reflecting rural cost structures.

Using USDA for New Construction

USDA loans can be used for new home construction, not just resale purchases. The process requires USDA approval of the construction project and builder, USDA-compliant appraisal, and typically takes longer than a conventional construction loan — plan for 45–60 days minimum from application to closing. The zero-down-payment advantage is significant for buyers who want to build but have limited cash reserves beyond closing costs.

USDA Limitations to Know

USDA loans have property type restrictions (the home must be a primary residence meeting minimum property standards), size limitations in some interpretations, and the USDA approval process adds administrative steps. The loan also includes an upfront guarantee fee and an annual fee (rolled into payments), which affect the true cost comparison against conventional loans with PMI. Run the comparison with a lender who knows both programs.

Lot Loans: Financing the Land Before You Build

Some buyers purchase a lot first with the intention of building later. Lot loans (also called land loans) are distinct from construction loans — they finance the land purchase with the expectation that a construction loan will follow. Lot loans typically require larger down payments (25–35%) and carry higher rates than improved property loans. If you are purchasing a lot with a near-term build timeline, a lender who offers both lot and construction products can often structure a more efficient combined path. See our 2026 land and lot availability guide for current pricing context.

Timing: Start Financing Before You Find the Lot

The single most common mistake new-construction buyers make is finding a lot or a builder before they have established their financing path. Construction lenders take longer to approve and require more documentation than purchase lenders — if you find a lot you want and then start the financing process, you risk losing the lot while your financing is being assembled. Get pre-qualified for construction financing before you start the lot search.

Frequently Asked Questions