Construction Loan Options for a Custom Home Build in Northeast Florida

How construction loans actually work: single-close versus two-close, how draw schedules pay the builder, and why the contract type you sign changes what a lender will finance.

A construction loan pays for a custom home in stages as it gets built, rather than all at once at closing the way a mortgage on an existing home does, and which of two common structures you use decides whether you refinance later or not. A construction-to-permanent loan, also called a single-close loan, converts automatically into a regular mortgage the day the home is finished. A stand-alone construction loan pays for construction only and has to be paid off or refinanced into a separate permanent mortgage once the house is done. Everything else, the draw schedule, the interest, what your contract type does to your options, follows from which of the two you are in.

What is the real difference between a construction-to-permanent loan and a stand-alone construction loan?

A construction-to-permanent loan closes once, at the start, and rolls straight into a standard mortgage at completion without a second closing, a second set of closing costs, or a second underwriting review based on your finances at that later date. A stand-alone construction loan closes at the start too, but it is a short-term loan built to be paid off, meaning you close again on a permanent mortgage once the home is complete, with a fresh underwriting review, a fresh appraisal, and a second round of closing costs. The single-close structure is generally the simpler and less expensive path when you already know you will keep the finished house, since the two-close structure exists mainly for borrowers who want the flexibility to shop lenders again after completion or who are not certain yet what their financial picture will look like when the house is done.

How does the builder actually get paid during construction?

Through a draw schedule, meaning the lender releases the loan in stages tied to inspected progress rather than handing over the full amount at closing. A typical draw schedule pays out at points like site work and foundation, framing and dry-in, rough mechanical, electrical, and plumbing, insulation and drywall, and finishes, with a lender-ordered inspection or a title company’s disbursement process confirming that each stage is actually done before the next draw goes out. That structure protects you as the borrower as much as it protects the lender: money only moves when there is finished work behind it, and a builder who has not reached a stage cannot draw against it.

Why does the loan charge interest before the house is even finished?

Because most construction loans charge interest only on the amount you have actually drawn to date, not on the full loan amount you were approved for, so your carrying cost during construction rises as the project advances instead of being fixed from day one. Early in the build, when only the site work and foundation draw has gone out, the interest cost is small. By the time framing, mechanicals, and finishes have all drawn, you are paying interest on most of the committed amount, which is worth budgeting for as a real monthly cost during construction, separate from the eventual mortgage payment once the loan converts or gets refinanced.

Does the type of contract I sign affect what a lender will finance?

Yes, and this is the point where financing and contract structure meet directly. A fixed-price or guaranteed-maximum-price contract gives a lender a defined number to size the loan against and to appraise the finished house’s value against, which is generally the easier file for a construction lender to approve. An open-ended cost-plus contract with no ceiling gives the lender a moving target instead of a number, which can complicate both the loan amount and the appraisal. We cover the tradeoffs between contract types on their own terms, independent of financing, in design-build or an architect plus a builder, and it is worth reading that alongside this one, because the contract questions there (is the price fixed, cost-plus, or cost-plus with a cap) are exactly the questions your lender is going to ask too.

What happens to the loan if a change order raises the price mid-project?

The lender does not automatically cover it, because the loan was sized to the contract amount as originally signed, not to whatever the final cost turns out to be once the house is built. A change order that increases the contract price generally means one of two things: you fund the difference in cash, or you go back to the lender for a loan modification, and neither of those is instant. That is one more reason a clear, complete scope before signing matters as much for financing as it does for the build itself, and our guide to change orders goes through why they happen and how to keep them from stacking up.

Does owning the lot already help with financing?

It generally does. If you already own the buildable lot free of a mortgage, that equity commonly counts toward the down payment or equity requirement a construction lender asks for, which can meaningfully reduce the cash you need to bring to closing. If you still need to buy the lot, many construction-to-permanent programs can roll the lot purchase into the same loan rather than requiring a separate transaction. Either way, what the lot itself will actually let you build, its setbacks, its required elevation, any architectural review it falls under, is worth settling before the loan conversation goes very far, which is exactly the ground we cover in evaluating a lot for a new custom home in Nocatee, Ponte Vedra, or Palm Coast.

What this article will not tell you

Current interest rates, specific down-payment percentages, and specific lender programs change too often and vary too much by lender to state honestly here, and Wilson & Co does not originate loans, so naming a specific program would not be an informed recommendation either. What stays true regardless of the rate environment is the structure: single-close versus two-close, draws tied to inspected progress, interest on the drawn balance, and a contract type your lender can actually underwrite. Those are the questions worth bringing to a lender early, before a design is finished, rather than discovering the answers after you are already committed to a scope.

Cameron Short, a Wilson & Co customer who compared three contractors before choosing one, said it plainly: “Jay and team were incredibly transparent, high communication and most importantly efficient. The scope of work was clearly broken down in detail with very reasonable pricing estimates.” A clearly broken-down scope is exactly what a construction lender wants to see too, for the same reason a homeowner does: it is the difference between a number you can plan around and one you are guessing at.

If you are financing a custom home in St. Augustine, Jacksonville, Ponte Vedra, Nocatee, or Palm Coast, bring your lender’s questions to the same early conversation where we talk through the lot and the scope. Getting the contract structure and the loan structure aligned before drawings are finished is what keeps the two from working against each other later.