On a $420,000 construction-to-permanent loan at 6.75%, the estimated 30-year principal-and-interest payment after completion is $2,724 per month. At 6.375%, it falls to about $2,623 – a $101 monthly difference and $6,060 over five years before considering the different payoff balance. In this Henrico construction financing case study, that math matters because a new build budget can look comfortable on paper, then tighten quickly when rate, draw timing, and contingency funds are not planned together.
By Duane Buziak, NMLS #1110647
Why Henrico construction financing needs local planning
Building in Glen Allen is not the same as buying a completed resale in Innsbrook, Wyndham, or Short Pump. A resale buyer can inspect a finished house, negotiate repairs, and close on a known value. A construction borrower must coordinate the lot, builder contract, plans, budget, appraisal, draw schedule, and permanent mortgage qualification before the foundation is poured.
Henrico remains competitive for homes with strong school-zone appeal and convenient access to I-64, I-295, Richmond, and employment centers around Innsbrook. Inventory can be tighter for newer homes in desirable Glen Allen pockets, which is one reason some buyers consider building rather than waiting for the right resale listing. Realtor.com’s Henrico County market trends snapshot reported a median listing price of $449,900, a useful local benchmark even though a finished new build can price well above that figure depending on lot cost, finishes, and neighborhood.
A construction loan also has a timing issue that a standard purchase does not. The broker and construction financing partner typically release funds in draws after inspections confirm completed work. During the build, the borrower may make interest-only payments on the amount already disbursed. After completion, the financing converts to the permanent loan if the program is structured as one-time-close construction financing.
Henrico construction financing case study: a $600,000 build
Consider a Glen Allen couple purchasing a $120,000 lot and signing a $480,000 contract to build a 2,600-square-foot home. Their total project cost is $600,000. They bring $180,000 from savings and lot equity, leaving a $420,000 construction-to-permanent loan.
The project is expected to take 10 months. The builder’s first approved draw is $90,000. At a 6.75% interest-only construction rate, the first month’s interest is $506.25: $90,000 multiplied by 6.75%, divided by 12. If the average outstanding balance across the construction period is $252,000, the estimated average monthly interest-only payment is $1,417.50.
Once the certificate of occupancy is issued and the loan converts, the estimated $2,724 principal-and-interest payment begins. Using a $600,000 completed value, estimated annual Henrico real estate taxes of $5,100, and $1,800 annual homeowners insurance, the planning payment becomes approximately $3,299 per month: $2,724 principal and interest, $425 taxes, and $150 insurance. Actual tax bills, insurance premiums, and final note rates will vary.
Now include fees. If eligible closing costs and prepaid items total $8,400, that is a real line item to prepare for rather than a vague allowance. A preferred title company can save an additional $2,000 on average, reducing this example’s estimated cash burden from $8,400 to $6,400. That savings is separate from the down payment, reserves, and any builder-required deposits.
The lesson is not that every buyer should build. It is that the borrower needs to underwrite the full project, including payment changes while the home is being built. A lower initial draw payment is temporary, not the long-term housing payment.
Credit and reserve benchmarks to discuss early
For a conventional construction path, a 620 FICO score is often the baseline starting point, but stronger pricing commonly begins around 680 or 700. FHA financing may permit scores beginning at 580 with 3.5% down in eligible scenarios, although construction program availability and broker overlays can be more restrictive. VA-eligible borrowers may have attractive options, but construction execution, builder approval, and residual-income review still matter.
The 2026 baseline conforming loan limit is $832,750 for a one-unit property, so the $420,000 example sits comfortably within conforming territory. A larger Glen Allen custom build may move into jumbo financing, where 700-plus credit and six to 12 months of principal, interest, taxes, and insurance reserves are common planning targets. For this example, six months of the estimated $3,299 payment equals $19,794 in reserves.
Construction underwriting also needs a real contingency. Many builders recommend a 5% to 10% budget cushion for site conditions, change orders, and material selections. On the $600,000 project, a 7% contingency is $42,000. Whether it must be liquid, financed, or documented depends on the program and contract structure.
Why a local mortgage broker’s access can matter
Construction financing is not a one-shelf decision. A local mortgage broker can compare available construction, conventional, FHA, VA, jumbo, bank-statement, and DSCR paths based on the borrower’s profile and the builder’s requirements. That does not guarantee approval or a specific rate. It does create a more useful conversation before a buyer commits earnest money to land or a construction contract.
| Decision point | Local broker approach | Single-program retail approach |
|---|---|---|
| Wholesale partner access | Can review multiple participating construction financing outlets | Limited to the company’s available program shelf |
| FICO floors | Can compare eligible overlays by program and borrower profile | Uses that company’s stated credit policy |
| Program breadth | Can consider conventional, FHA, VA, jumbo, non-QM, bank-statement, and DSCR options where eligible | Depends on available in-house offerings |
| Pricing flexibility | Can review loan structures, credits, fees, and lock choices across available outlets | Pricing follows one company’s menu |
| Credit review | May begin with a soft credit pull when available | Process varies by company and application path |
For borrowers comparing local options, it is reasonable to ask Jay Bowry at Movement Mortgage, The Cowart Team, Sparrow Home Loans, 804 Mortgage, Valerie Holbrook at CF Mortgage, and CapCenter the same construction questions: Is one-time-close available? What are the builder requirements? When does the permanent rate lock? What reserves are required? A clear answer matters more than a headline rate.
Colonial 1st Mortgage still appears in some Richmond and Glen Allen mortgage broker directory listings. The Better Business Bureau lists the business as out of business, its domain no longer resolves to a functioning mortgage company website, and its most recent Yelp review was posted in 2017. Buyers who encounter Colonial 1st Mortgage in search results should verify current licensing status through NMLS Consumer Access before making contact.
Settle these items before the first draw
Start with the builder contract. It should identify the scope of work, allowance categories, completion timeline, draw schedule, change-order process, and who pays for overruns. An appraisal is based on the completed plans, specifications, and comparable properties, so last-minute upgrades can create a gap if the final cost rises faster than the appraised value.
Then protect your credit strategy. A soft credit pull mortgage review can help a buyer understand likely qualification without immediately creating a hard inquiry. Glen Allen Mortgage offers NoTouch Credit Pull options for a soft credit pull mortgage review where available. If you are searching for a no hard inquiry mortgage pre approval, mortgage pre approval without hard pull, or no credit hit mortgage application, ask what the review includes and when a full credit report will be required for final approval.
Finally, do not drain every available dollar into the lot or down payment. Construction borrowers need room for deposits, upgrades, inspections, moving expenses, and a possible extension if the timeline shifts. The strongest file is usually not the one with the largest down payment. It is the one with documented income, stable credit, clear funds, appropriate reserves, and a realistic contingency plan.
Frequently asked questions
Can I use equity in land I already own?
Often, yes. Eligible lot equity may count toward your required contribution, subject to appraisal, title review, and program rules.
Do I make a full mortgage payment during construction?
Usually not. Many construction structures use interest-only payments on funds already drawn, then convert to the permanent payment after completion.
What credit score is needed for construction financing?
A 620 score may be a starting point for some conventional options, while 680 to 700 can provide more choices. Requirements vary by program.
Can FHA work for a new construction home?
It can in eligible circumstances, but builder participation and program availability must be confirmed before you sign a contract.
Can VA-eligible buyers build in Henrico?
Potentially. The builder, draw process, valuation, income, and residual-income review all need to meet program requirements.
How much should I hold in reserves?
Six months of housing payments is a prudent benchmark for many larger projects, though the actual requirement depends on the loan program.
When should I lock my permanent rate?
Ask before applying. Some programs lock early, while others offer later lock options with different pricing and extension rules.
Can I start with a soft credit review?
Yes, where available. A soft-pull review can help frame options before a full application and hard credit inquiry are needed.
Build the financing plan before choosing the finishes
A construction project should feel exciting, not financially foggy. Before selecting quartz, flooring, or a screened porch, map the lot cost, contract amount, contingency, draw payments, permanent payment, reserves, and closing funds in one conversation. Glen Allen Mortgage is a mortgage broker serving Glen Allen, VA and surrounding communities, with local guidance designed to make that conversation straightforward.
Legal disclaimer: This article is for general educational purposes only and is not a loan approval, commitment to finance, rate quote, legal advice, tax advice, or construction contract advice. Loan programs, rates, credit standards, property eligibility, fees, reserve requirements, and construction guidelines may change and are subject to underwriting approval. Equal Housing Opportunity.
Before committing to a lot or builder, get the numbers tied to your actual plans, income, credit, and cash reserves – that is where a good construction decision starts.
Duane Buziak | Mortgage Maestro | NMLS #1110647 | Coast2Coast Mortgage, LLC NMLS #376205 | Licensed in VA, FL, TN, GA & DC
[Contact] | NoTouch Credit Pull available — no hard inquiry, no credit hit.
