Asheville Construction Loan Primer


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Kaizen Homes understands that not only do you want to feel comfortable in your new home, you also want to feel comfortable in your financial commitments. Securing financing for your new home construction is a pivotal step that lays the groundwork for a seamless building process. Much like purchasing a home, consulting with your financial advisor or mortgage lender is essential. Their expertise will help you understand the size and style of home you can afford before embarking on the construction journey. Obtaining pre-approval from a mortgage lender not only streamlines the financing process but also provides a clear understanding of your borrowing capacity, enabling you to make informed decisions.

For our Asheville Construction Loan Primer, Mortgage Advisor James Madison of United Federal Credit Union, an experienced Asheville area lender, graciously shared his expertise by addressing some frequently asked questions about financing a new custom home. With extensive experience working with several clients, James is very familiar with the Kaizen Homes process.

For our Asheville Construction Loan Primer,

- Asheville Contemporary Home Move In Day

A construction-to-permanent loan (construction-to-perm-loan) is a type of financing that combines the construction loan and the mortgage into a single loans process. Here’s how it typically works.

Phases of a construction-to-perm loan:

Construction Phase:

  • Loan Application: the borrower applies for a loan to cover the cost of building the home.

This includes providing detailed construction plans, a budget, and a timeline.

  • Approval and Disbursement: once approved the loan is disbursed in stages, called draws, as construction progresses. The lender usually inspects the construction site at each stage before releasing the next draw to ensure that the work is being completed as planned.
  • Interest-only-payments: during the construction phase the borrower typically makes interest-only payments on the amount that has been disbursed. The interest rate during this period may be variable.

Conversion to Permanent Loan:

  • Completion of Construction: Once construction is complete, the loan transitions into a permanent mortgage. This is usually after the home passes a final inspection and obtains a certificate of occupancy.
  • Permanent Mortgage Terms: the loan is then converted into a standard mortgage with a fixed or adjustable interest rate, and the borrower starts making regular mortgage payments that include both principal and interest.
Asheville Construction Loan Primer Desk

Key Features and Benefits:

  • Single Closing: one of the major benefits of a construction to perm loan is that there is only once closing, which saves on closing costs and reduces the administrative hassle.
  • Rate Lock: Some lenders offer the option to lock in the interest rate for the permanent mortgage at the time of the initial loan approval, providing protection against rising interest rate during the construction period.
  • Simplicity and Convenience: having a single loan simplifies the financing process, as there is no need to qualify for a separate mortgage once the construction is completed.

Eligibility and Requirements

  • Creditworthiness: borrowers need a good credit score and a stable income to qualify for a construction to perm loan
  • Down Payment: typically, a down payment of 10% or more of the total Purchase.
  • 10% of the cost to build in reserves.
  • Detailed Documentation: Lenders require comprehensive documentation, including construction plans, contractor agreement and timelines.


  • Pre-Qualification: Determine how much you can borrow based on your financial situation.
  • Choosing a Contractor: Select a reputable builder and create detailed plans and a construction Budget.
  • Apply for the Loan: Submit your application along with all required documentation.
  • Loan Approval and Closing: If approved, close on the loan and begin the construction phase
  • Monitor Construction: Ensure the construction stays on schedule and within budget.
  • Convert to Permanent Mortgage: Once construction nis complete, the loan converts to a permanent mortgage

In summary, a construction-to-Perm loan is an efficient way to finance both the building and long-term ownership of a custom home, providing convenience and potentially lower costs through a single closing process. However, it requires careful planning, through documentation, and coordination with a reputable builder.