The new construction home loan process works differently than financing a home that’s already built, and Richmond-area buyers who don’t plan for that difference often lose weeks waiting on a builder’s in-house lender to catch up. By the end of this guide, you’ll know the exact sequence for financing a newly built home in the Richmond area, from pre-approval through closing. Before you start, have a target build location, an estimated budget, and a sense of whether you’re using VA, FHA, or conventional financing.
- Step 1: Get Pre-Approved Before You Talk to a Builder
- Step 2: Choose the Right Loan Program for New Construction
- Step 3: Select a Builder and Review the Contract Terms
- Step 4: Lock Construction Loan Terms and Run the Numbers
- Step 5: Track Draw Schedules and Required Inspections
- Step 6: Convert to Permanent Financing
- Step 7: Close on Your New Construction Home
Step 1: Get Pre-Approved Before You Talk to a Builder
Start with pre-approval, not a builder’s model home. A soft-pull pre-approval, like the NoTouch Credit Pull process Duane Buziak, NMLS #1110647, uses with Richmond-area buyers, lets you shop builders and compare lot options without generating a hard credit inquiry. That matters when you’re still deciding between neighborhoods, builders, or even loan programs, because multiple hard pulls in a short window can shave points off your score right when you need them most.
Most production and semi-custom builders in the Richmond market won’t release a lot, schedule a start date, or finalize a contract until they see proof of financing. A pre-approval letter tells the builder’s sales office you’re a qualified buyer and speeds up everything that follows: lot reservation, plan selection, and the initial construction schedule. Without it, you’re often stuck at the back of the line while other buyers with financing in hand move ahead.
The mistake to avoid here is signing a builder contract before your loan eligibility is confirmed. Builder contracts frequently include earnest money terms that are far less forgiving than a resale purchase agreement, sometimes with non-refundable deposits once construction materials are ordered. If you sign first and discover a credit, income, or debt-to-income issue during underwriting, you can be locked into a contract with money at risk and no clean way out. Getting pre-approved first gives you leverage to negotiate contract terms from a position of strength rather than urgency, and it gives your loan officer time to flag any issues, such as a VA entitlement question or a debt-to-income ratio that needs adjusting, before you’re committed to a lot and a build schedule.
Step 2: Choose the Right Loan Program for New Construction
New construction financing splits into two structures: one-time-close construction-to-permanent loans and two-time-close loans. A one-time-close loan combines the construction phase and the permanent mortgage into a single closing and a single set of loan documents, which means one appraisal, one underwriting file, and one closing cost package. A two-time-close loan closes the construction phase separately, then requires a second closing, a new appraisal, and updated documentation once the home is finished. One-time-close structures are more common for VA, FHA, and conventional borrowers building in the Richmond area because they reduce paperwork and closing costs, but not every builder or lender offers them for every program.
VA construction loans require the builder to hold a VA builder ID number, and eligible veterans can finance with no down payment. Conventional construction-to-permanent loans typically require a down payment between 5% and 20%, depending on credit profile and loan-to-value. FHA construction loans exist but come with stricter builder documentation requirements and are less common for one-time-close structures in this market.
The table below compares the two most common paths Richmond-area buyers use for new construction.
| Feature | VA Construction-to-Perm | Conventional Construction-to-Perm |
|---|---|---|
| Down Payment | 0% for eligible veterans | 5% to 20%, depending on credit and LTV |
| Credit Floor (typical) | 580 to 620, lender-dependent | 620 minimum, higher for best pricing |
| Mortgage Insurance / Funding Fee | VA funding fee applies (varies by use and down payment); no monthly MI, per VA.gov | PMI required below 20% down until equity threshold is met |
| Builder Approval Requirement | Builder must hold a current VA builder ID number | Builder must meet lender/investor construction standards; no VA ID required |
| Closing Structure | Typically one-time-close | One-time-close or two-time-close, lender-dependent |
Step 3: Select a Builder and Review the Contract Terms
Once you know your loan program, confirm the builder is set up to work with it. For VA financing, the builder must have an active VA builder ID number on file with the Department of Veterans Affairs; without it, the loan can’t close as a VA construction loan no matter how strong your file is. Ask for this number directly and confirm it’s current rather than assuming the sales office has it handled.
Before signing anything, review three parts of the contract closely:
- The build timeline, including what happens contractually if the home isn’t finished by the stated completion date
- Price escalation clauses that allow the builder to raise the contract price if material or labor costs increase during construction
- Change-order pricing, since selections made after the initial contract (upgraded flooring, structural changes, added square footage) are often priced separately and can affect your final loan amount
A common mistake among first-time build buyers is assuming the builder’s in-house or preferred lender is the only option, or that its terms match what an independent broker/lender can offer. Builders often incentivize using their preferred lender with closing cost credits, but those credits sometimes come with a rate or fee structure that costs more over the life of the loan. Because Richmond Home Loans works as both a broker and a lender with access to hundreds of wholesale lenders, you’re able to compare the builder’s in-house offer against outside options before deciding, rather than defaulting to whichever lender the sales office recommends.
Step 4: Lock Construction Loan Terms and Run the Numbers
Before you lock rate terms, understand two mechanics unique to construction lending. An interest reserve account is a fund, often built into the loan amount, that covers interest-only payments during the build phase so you’re not paying full principal and interest on a home you can’t yet occupy. Once the home is complete and the loan converts, payments shift to standard principal-and-interest amortization.
Rate locks also work differently. A typical resale purchase might lock a rate for 30 to 45 days. New construction in the Richmond market often runs 6 to 12 months from permit to certificate of occupancy, so ask specifically about extended rate-lock options and what an extension costs if the build runs long. Confirm this in writing before you sign anything, not after ground is broken.
Worked Example: $475,000 New Build, VA vs. Conventional
Suppose you’re financing a $475,000 new-construction home, a price point consistent with recent city-wide new-build listings tracked in Richmond-area market data. Figures below are illustrative estimates as of 2026, not quoted rates, and will vary based on your credit profile and locked terms.
- VA financing, 0% down: loan amount of roughly $475,000 plus the VA funding fee financed into the loan. At an illustrative 6.5% rate on a 30-year term, principal and interest runs approximately $3,001 per month, with no monthly mortgage insurance.
- Conventional financing, 5% down: down payment of $23,750, loan amount of roughly $451,250. At the same illustrative 6.5% rate, principal and interest runs approximately $2,852 per month, plus PMI that commonly adds $150 to $250 per month until sufficient equity is reached.
The delta: the VA path requires no cash down but a higher loan balance, while the conventional path requires roughly $23,750 at closing plus ongoing PMI, but a smaller monthly principal-and-interest payment before PMI is added back in. Which one costs less over time depends on how long you hold the loan and how quickly PMI drops off, which is exactly the kind of comparison worth running with a loan officer before you lock.
Step 5: Track Draw Schedules and Required Inspections
Once construction begins, your lender doesn’t hand the builder a lump sum. Funds release through a draw schedule tied to inspected milestones, typically foundation, framing, drywall, and final completion. A lender-ordered inspector confirms each stage is done before the next draw is released, which protects both you and the lender from paying for work that hasn’t happened.
For VA loans specifically, a final compliance inspection confirms the completed home meets the VA’s minimum property requirements before the loan converts to permanent financing. This is separate from the builder’s own quality walkthrough and is required regardless of how well the build went.
The mistake to avoid: assuming a construction delay, whether from weather, permitting, or supply issues, won’t affect your rate lock. Extended timelines are common enough in the current Richmond building environment that you should confirm your lock extension terms in writing at the start of the build, not scramble to negotiate one when the framing inspection gets pushed back three weeks.
Step 6: Convert to Permanent Financing
If you used a one-time-close loan, conversion happens automatically once the local building department issues the certificate of occupancy. In most cases, this doesn’t require a second closing, a new credit pull, or a new application; the loan simply shifts from the interest-only construction phase into standard amortized payments based on the terms you locked at the start.
If you used a two-time-close structure, conversion is a separate transaction. You’ll need to submit updated income and asset documentation, since lenders want current financials rather than what you provided when the build started months earlier, and a new appraisal will be ordered on the completed home. This second closing carries its own set of closing costs, which is one reason one-time-close loans have become the more popular choice for VA and conventional buyers building in this market.
Either way, confirm before conversion that your final loan amount accurately reflects any approved change orders made during the build. Upgraded finishes, structural additions, or selection changes can shift the final cost of the home, and that adjustment needs to be reconciled into the loan before it converts, not discovered after the fact.
Step 7: Close on Your New Construction Home
The final steps mirror a standard closing, with a few construction-specific checks layered in. Federal timing rules under the TRID regulation require you to receive your final Closing Disclosure at least three business days before signing, giving you time to compare it against your original Loan Estimate and flag any discrepancies, a rule detailed by the Consumer Financial Protection Bureau.
Before you sign, schedule a final walkthrough with the builder to confirm every punch-list item, the small fixes and touch-ups identified during earlier inspections, has actually been completed. Funding can be held up if outstanding items are significant, so this walkthrough should happen close enough to closing day that nothing new pops up in between.
You’ll also need proof of homeowner’s insurance effective on the closing date itself, not a quote or a pending application. This applies whether you’re closing with VA or conventional financing, and most lenders require the policy to be bound and paid for the first year before they’ll release funds. Once the Closing Disclosure is signed, funding is confirmed, and the deed is recorded, the home is officially yours and the permanent mortgage terms take effect.
Common Questions on the New Construction Home Loan Process
What is a one-time-close construction loan?
A one-time-close construction loan combines the construction phase and the permanent mortgage into a single closing, so you sign once and the loan automatically converts after the home is finished.
How is a two-time-close construction loan different?
A two-time-close loan requires a separate closing for the construction phase and another closing once the home is complete, including a new appraisal and updated documentation.
Do VA construction loans require a down payment?
Eligible veterans can finance a new construction home with 0% down through a VA construction loan, provided the builder holds an active VA builder ID number.
What is a VA builder ID number?
A VA builder ID number is a registration the Department of Veterans Affairs issues to builders, confirming they meet VA requirements to build homes financed with VA loans.
What is an interest reserve account?
An interest reserve account is a fund built into a construction loan that covers interest-only payments during the build phase, before the loan converts to a standard mortgage.
How does a draw schedule work on a construction loan?
A draw schedule releases loan funds to the builder at set milestones, such as foundation, framing, drywall, and final completion, after a lender-ordered inspection confirms each stage.
Do I need to extend my rate lock during a new build?
Many Richmond-area builds run 6 to 12 months, so you should confirm rate-lock extension terms in writing before construction starts, since delays are common.
Does a new construction home need a second appraisal after it’s built?
One-time-close loans typically use a single appraisal based on plans and specifications, while two-time-close loans require a new appraisal on the finished home.
What happens at the VA final compliance inspection?
The VA final compliance inspection confirms the completed home meets the VA’s minimum property requirements before the construction loan converts to permanent financing.
Can I use a lender other than the builder’s preferred lender?
Yes, you can compare the builder’s in-house lender against outside broker and lender options, since incentives tied to the builder’s preferred lender don’t always produce the lowest overall cost.
This information is not intended to be an indication of loan qualification, loan approval or commitment to lend.
Once you close, keep copies of your builder warranty and final inspection reports on hand. They document the condition of the home at handoff and can matter later for warranty claims or resale. Whether you’re a veteran ready to use your hard-earned benefits or a homebuyer exploring your financing options, your path to homeownership starts with expert guidance you can trust. Connect with Duane today for a personalized consultation and discover the mortgage solution tailored to your unique goals in the Stafford County and Richmond area.