Picture this: a family in Short Pump has spent months designing their dream home near Deep Run High School. They know exactly what they want — the floor plan, the finishes, the lot near West Broad Village. They call three retail lenders to ask about construction financing, and every single one gives them a different answer. One says they don’t offer construction loans. Another quotes a rate but can’t explain the draw schedule. The third asks for documents the family has never heard of. Six weeks later, they’re no closer to breaking ground.
This is the construction loan experience for most homebuyers in Henrico County, and it doesn’t have to be yours.
Construction loans are fundamentally different from the purchase mortgages most buyers are familiar with. The process has multiple phases, involves more parties, requires more documentation, and carries more risk at every step — for the borrower, the builder, and the lender. Most buyers don’t learn this until they’re already behind. This guide changes that.
What follows is a complete, step-by-step breakdown of the construction loan process — from your very first soft credit pull mortgage inquiry through the certificate of occupancy and permanent loan conversion. You’ll get real numbers, local Henrico County context, and a broker’s honest perspective on why the lender you choose matters more on a construction loan than on any standard purchase.
Written by Duane Buziak, NMLS #1110647 | Coast2Coast Mortgage LLC NMLS #376205
The smartest first step? Start with a NoTouch Credit Pull — a soft pull pre-approval that gives you a real picture of your construction loan options without any hard inquiry hitting your credit report. More on that in Phase 1. Let’s start with the fundamentals.
How Construction Loans Actually Work: The Core Structural Difference
A traditional purchase mortgage is straightforward: the lender hands over a lump sum at closing, you get the keys, and you start making principal-and-interest payments on a 30-year amortizing loan. A construction loan works nothing like this.
A construction loan is a short-term, interest-only draw loan. Instead of releasing the full loan amount at once, the lender funds the build in stages called draws — releasing money as construction milestones are verified and completed. You pay interest only on what has been drawn, not on the total loan amount. This is a meaningful cash flow advantage during the build, and we’ll show the exact math below.
There are two primary structures you’ll encounter:
Construction-to-Permanent (Single Close): One loan, one closing, one set of closing costs. The loan starts as a construction draw facility and automatically converts to a permanent mortgage when the home is complete. The permanent rate is locked at the original closing — a significant advantage in a volatile rate environment. Most Henrico County buyers building custom homes prefer this structure for its simplicity and cost efficiency.
Two-Close Construction Loan: Two separate transactions. First, you close on a short-term construction loan to fund the build. When construction is complete, you close again on a permanent mortgage to pay off the construction loan. Two closings means two sets of closing costs and two rounds of underwriting — but it also offers more flexibility if your financial picture or rate environment changes significantly during the build.
The conforming loan limit for Henrico County in 2026 is $806,500 (baseline) per the FHFA, which sets the ceiling for conventional construction-to-permanent loans in this market. Build costs that push the total loan above that threshold move into jumbo construction territory, where the high-cost ceiling reaches $1,249,125 and reserve requirements become more stringent. Buyers approaching that threshold should review jumbo loan options in Richmond early in the planning process.
Understanding which structure fits your project — and which wholesale lender’s program fits that structure — is the first decision that shapes everything else in the process. It’s also where working with an independent broker rather than a single-shelf retail lender starts to matter immediately.
Phase 1: Pre-Qualification and Choosing the Right Lender
Here’s the mistake most Short Pump homebuilders make: they treat construction loan pre-qualification like a standard mortgage pre-qual. They call a retail lender, give their income and credit score, and expect a quick answer. Construction loan pre-qualification doesn’t work that way.
A construction loan lender evaluates three things simultaneously: the borrower’s creditworthiness, the builder’s credentials and track record, and the viability of the project plans. All three have to clear underwriting. If your builder doesn’t meet a particular lender’s approval criteria, the loan dies — even if your credit and income are perfect. This is the single most common reason construction loan applications stall at retail lenders, which typically offer only one construction product with fixed builder approval requirements.
An independent broker accesses construction programs across multiple wholesale lenders, each with different FICO minimums, LTV limits, draw structures, and builder approval criteria. When one program doesn’t fit, there are others to evaluate — without starting over from scratch. Understanding how a local mortgage broker compares to a bank is essential context before you commit to any lender on a construction project.
The smart first move is a no credit inquiry mortgage approval through the NoTouch Credit Pull process. This is a soft pull — it gives you and your broker a real credit picture, a loan scenario with estimated rates and payments, and a clear sense of which programs you qualify for. It does not trigger a hard inquiry. Your credit score is unaffected. You can shop, plan, and compare options before you’ve committed to a builder contract or a lot purchase.
Buyers who want a mortgage pre-approval without hard pull are often surprised to learn this is available for construction scenarios — not just standard purchases. As a soft pull mortgage broker, Duane Buziak runs the NoTouch Credit Pull at the very first conversation, so you walk in knowing your position before any lender has touched your credit file. A no credit hit mortgage application is always the right starting point when you’re still evaluating your options.
Documents you’ll need at the pre-qualification stage include: two years of tax returns and W-2s (or 12–24 months of bank statements if you’re self-employed — see the bank statement construction loan option below), a signed construction contract, builder’s license and insurance documentation, project plans and specifications, and a cost breakdown from your builder. The more complete your package, the faster the pre-qualification moves.
For self-employed buyers, the bank statement construction loan is a Non-QM program that uses business or personal bank deposits rather than tax return income to qualify. This is available through Duane’s wholesale channel and is one of the programs retail lenders almost never carry.
Phase 2: The Draw Schedule and How Your Builder Gets Paid
Once your construction loan closes, the money doesn’t go to your builder in one payment. It flows through a draw schedule — a structured series of disbursements tied to verified construction milestones. Understanding this process protects both you and your builder.
A typical Henrico County new construction draw schedule runs five to six draws over a 9–12 month build period, covering these milestones: foundation pour, framing completion, rough mechanicals (plumbing, electrical, HVAC), drywall and insulation, interior and exterior finishes, and the final draw upon issuance of the certificate of occupancy from Henrico County’s Department of Building Construction and Inspections.
Here’s how the process works: your builder submits a draw request at each milestone. The lender sends an independent inspector to verify the percentage of completion. Once verified, funds are released directly to the builder (or into an escrow account). You pay interest only on the cumulative amount drawn to date — not on the full loan amount.
This interest-only structure is one of the most important financial features of a construction loan. Here’s what it looks like with real numbers for a Short Pump family building a $650,000 custom home near Deep Run High School, with a $520,000 construction loan (20% down on land and build combined) at an illustrative 7.5% variable rate during the build phase. Note: actual rates vary by program and market conditions at the time of application.
| Draw | Milestone | Cumulative Drawn | Monthly Interest Payment |
|---|---|---|---|
| Draw 1 | Foundation Pour (15%) | $78,000 | $487.50 |
| Draw 2 | Framing Complete (35%) | $182,000 | $1,137.50 |
| Draw 3 | Rough Mechanicals (55%) | $286,000 | $1,787.50 |
| Draw 4 | Drywall / Insulation (70%) | $364,000 | $2,275.00 |
| Draw 5 | Finishes (85%) | $442,000 | $2,762.50 |
| Draw 6 | Final / Certificate of Occupancy (100%) | $520,000 | $3,250.00 |
The key takeaway: in the early months of your build, you’re paying $487.50 per month — not $3,250. Interest accrues only on what has been disbursed. This gives your household meaningful cash flow flexibility while you may still be paying rent or a separate mortgage on your current home.
One more critical element: most construction lenders require a contingency reserve of 5–10% of the construction budget built into the loan amount. On a $520,000 construction loan, that’s $26,000–$52,000 held in reserve for cost overruns. This reserve protects you from having to come out of pocket if lumber prices spike or a subcontractor change adds unexpected costs. It also affects your total loan calculation, so factor it into your planning from day one. Reviewing a complete mortgage application checklist before your first lender conversation will help you arrive fully prepared.
Phase 3: Appraisal, Underwriting, and the As-Completed Value Challenge
Here’s where many construction loan applications run into trouble: the appraisal. Unlike a standard purchase where the appraiser evaluates an existing home, a construction loan uses an “as-completed” or “subject-to” appraisal. The appraiser values the home as if it were already built, based on your plans, specifications, and comparable sales in the area.
In Short Pump and western Henrico County, where median home prices run $520,000–$527,000, this appraisal is critical. If the as-completed value doesn’t support the total build cost, the loan doesn’t work — the lender won’t fund more than the appraised value, regardless of what your builder’s contract says. This is why choosing a builder with clean, detailed plans and realistic cost estimates matters as much as your credit score.
The CFPB’s overview of construction loans notes that construction financing involves more complexity than standard mortgages precisely because the collateral doesn’t yet exist at the time of underwriting. Lenders compensate for this uncertainty with additional requirements.
Construction loan underwriting has several layers that don’t exist in a standard purchase:
Builder Approval: The lender must approve your builder independently. They’ll verify the contractor’s license, general liability and workers’ compensation insurance, and track record of completed projects. A builder who is new, unlicensed in Virginia, or has unresolved complaints may not clear a retail lender’s rigid approval checklist — but may qualify through an alternative wholesale program.
Title Insurance on the Land: The lender requires title insurance on the lot before construction begins, protecting against liens or ownership disputes that could complicate the build.
Builder’s Risk Insurance: The builder must carry an active builder’s risk policy covering the structure during construction. This is separate from homeowner’s insurance, which doesn’t attach until the home is complete.
Rate Structure During Construction: Construction loans typically carry a variable rate during the build phase — often indexed to a benchmark rate. For single-close loans, the permanent rate is locked at the original closing, insulating you from rate movement during the build. For two-close loans, the permanent rate is set at the second closing, meaning 12 months of rate volatility is your exposure. In an uncertain rate environment, the single-close structure’s rate lock is a significant advantage worth discussing with your broker. Understanding conventional loan requirements in Virginia will help you evaluate which permanent loan program makes the most sense at conversion.
Broker vs. Retail Lender: Why the Gap Is Wider on Construction Loans
On a standard purchase mortgage, the difference between a retail lender and an independent broker is meaningful. On a construction loan, it can be the difference between your project moving forward and dying on the vine.
Retail lenders — whether large national platforms or regional banks — typically offer one construction loan product built around their own guidelines. Their FICO minimums, builder approval criteria, draw structures, and LTV limits are fixed. If your situation doesn’t fit that one product, there is no alternative. The loan is declined, and you start over with a different lender, losing weeks or months in the process. Buyers who have researched mortgage broker fees versus bank costs consistently find that independent broker access delivers better value on complex loan types like construction financing.
An independent broker accesses construction programs across 500+ wholesale lenders. Each program has different parameters. When Program A requires a 700 FICO and your score is 685, Program B may work. When Lender X won’t approve your builder because they’ve been in business less than three years, Lender Y has a different threshold. When you’re self-employed and your tax returns don’t reflect your actual income, a bank statement loan in Virginia through a wholesale channel may be the solution a retail lender simply doesn’t carry.
For eligible veterans, VA One-Time Close construction loans offer a path to building a home with no down payment. Duane Buziak offers VA loan programs to 500 FICO on standard VA purchases; VA construction programs may have varying FICO floors depending on the wholesale lender — this is a conversation to have directly at pre-qualification to confirm current program minimums.
Here’s a structural comparison of what independent broker access looks like versus a single-shelf retail lender on a construction loan:
| Feature | Short Pump Mortgage (Independent Broker) | Retail Lender (Single-Shelf) | Why It Matters |
|---|---|---|---|
| FICO Floor | Varies by program; FHA OTC from 580, conventional typically 680+ | Fixed by single product guidelines | More borrowers qualify; less chance of a hard stop |
| Lender Options | 500+ wholesale lenders | One in-house product | Program flexibility when one doesn’t fit |
| Soft Pull Available | Yes — NoTouch Credit Pull, no hard inquiry | Typically requires hard pull at pre-qual | Protects credit score during shopping phase |
| Builder Approval Flexibility | Multiple lender criteria to match against builder profile | Single fixed checklist; no alternative if builder doesn’t qualify | Fewer projects killed by builder approval issues |
| Self-Employed Options | Bank statement construction loans available (Non-QM) | Typically W-2/tax return documentation only | Self-employed buyers have a real path forward |
This is a structural comparison based on how independent broker access differs from retail lending. It reflects how wholesale channels work, not fabricated performance claims.
Phase 4: Construction Completion and Converting to Your Permanent Loan
The finish line for a construction loan is the certificate of occupancy — the document issued by Henrico County confirming that the home has been built to code and is safe for occupancy. When the CO is issued, the final draw is released to your builder, and the construction loan enters its conversion phase.
For single-close construction-to-permanent loans, the conversion process is relatively clean. No new appraisal is typically required. No new closing costs. The rate and terms established at your original closing take effect, and your loan converts to a standard amortizing mortgage — principal and interest, on the schedule you locked in at the start. This is one of the most compelling advantages of the single-close structure: the no-out-of-pocket closing options at conversion represent real savings compared to funding a second closing. Buyers who have already secured a home loan pre-approval letter through the NoTouch process are well-positioned to move through conversion quickly.
For two-close loans, the borrower re-qualifies for the permanent mortgage at the second closing. This means a new appraisal, new underwriting, new closing costs, and — critically — whatever the rate environment looks like at that moment. If rates have risen during your 12-month build, you pay the higher rate. If they’ve fallen, you may benefit. The two-close structure is a rate gamble that the single-close structure eliminates.
Several things can delay or derail the conversion process, and Short Pump homebuilders should plan for all of them:
Builder Delays: Construction loans are typically written for 12-month terms, sometimes extendable to 18 months. If your builder runs behind schedule and the construction loan term expires before the CO is issued, you’ll need an extension — which may come with fees and a rate adjustment. Choosing a builder with a proven timeline track record in Henrico County is not just a construction quality issue; it’s a financing issue.
Cost Overruns Beyond the Contingency: If build costs exhaust both the construction budget and the contingency reserve, the borrower must cover the difference out of pocket. This is why the contingency planning in Phase 2 matters so much. Get detailed, itemized bids. Build in realistic buffers.
Permit and CO Delays: Henrico County’s permitting process has its own timeline. Final inspections, corrections, and CO issuance can take longer than expected — particularly during high-volume construction periods. A broker who has navigated Henrico County construction timelines before can help you plan realistic conversion dates and, if needed, explore extension or program-switch options if the timeline stretches.
8 Construction Loan Questions Short Pump and Henrico County Buyers Ask Most
1. What is the minimum credit score for a construction loan in Virginia?
Most conventional construction loan programs require a minimum 680 FICO for best pricing, though FHA One-Time Close construction loans are available with scores as low as 580, and VA construction options may be available to eligible veterans at lower scores depending on the wholesale lender program. The right answer for your specific situation depends on which program your broker matches to your profile.
2. Can I use a VA loan to build a home in Short Pump, VA?
Yes — VA One-Time Close construction loans allow eligible veterans and active-duty service members to build a home with no down payment, combining the construction and permanent financing into a single closing. Program availability and specific FICO minimums vary by wholesale lender, so this is a conversation to have at your initial pre-qualification with a VA-experienced broker.
3. Do I have to make mortgage payments during construction in Henrico County?
During construction, you pay interest only on the funds that have been drawn to date — not on the full loan amount — which means your monthly payment starts low and increases gradually as each draw milestone is completed. In the example above, a $520,000 construction loan starts at $487.50 per month after the first draw, not the full $3,250 that would apply if the entire loan were drawn at once.
4. How long does the construction loan process take in Henrico County, VA?
From pre-qualification to closing on a construction loan typically takes 45–60 days; the build phase in Henrico County generally runs 9–12 months depending on builder pace, permit timelines, and weather, with the loan converting to permanent financing upon issuance of the certificate of occupancy from Henrico County’s Department of Building Construction and Inspections.
5. What happens if my builder goes over budget during construction?
Most construction loans include a contingency reserve — typically 5–10% of the construction budget — built into the loan amount to cover cost overruns; if costs exceed the total loan amount including contingency, the borrower must cover the difference out of pocket. This is why accurate builder bids and a well-structured contingency reserve at the outset are not optional planning steps.
6. Can a self-employed buyer get a construction loan in Short Pump?
Yes — self-employed buyers who cannot qualify using traditional tax return income documentation may be eligible for a bank statement construction loan through Non-QM wholesale channels, which uses 12–24 months of business or personal bank statements to verify income instead of W-2s or tax returns. This program is available through Duane’s wholesale network and is rarely offered by retail lenders.
7. What is a single-close construction loan and is it better than a two-close?
A single-close (construction-to-permanent) loan closes once, locks the permanent rate at the start, and converts automatically to a mortgage when construction is complete — saving the borrower a second set of closing costs and eliminating rate risk during the build. A two-close requires a separate closing for the construction loan and the permanent mortgage, which offers more flexibility if your financial situation changes significantly, but at higher total cost.
8. Can I get a soft pull pre-approval for a construction loan without affecting my credit score?
Yes — Duane Buziak’s NoTouch Credit Pull process allows buyers to receive a real construction loan scenario and pre-qualification assessment using a soft credit pull, with no hard inquiry and no impact to your credit score. This no credit hit mortgage application is the right starting point before you sign a builder contract, commit to a lot, or compare construction loan options across programs.
Your Next Steps: Building Smart Starts Before You Sign Anything
The construction loan process has four distinct phases: pre-qualification and lender selection, the draw schedule and active build, appraisal and underwriting, and the final conversion to permanent financing. Each phase has its own requirements, its own risks, and its own decision points where the right preparation — and the right broker — makes a measurable difference.
Construction loans reward borrowers who show up prepared. The buyers who get stuck are the ones who call a retail lender after they’ve already signed a builder contract, only to discover that lender doesn’t approve their builder, doesn’t offer a bank statement option, or doesn’t have a program that fits their project. By then, they’re behind before they’ve started.
The buyers who move smoothly through the process start with a soft pull pre-approval, understand their program options before committing to a builder, and work with a broker who can match the right wholesale program to their specific situation — borrower profile, builder credentials, project scope, and timeline all included.
Start with the NoTouch Credit Pull. Understand your construction loan options before you sign a builder contract. Connect with our local mortgage experts today or call Duane Buziak directly at (804) 212-8663. There is no hard inquiry, no obligation, and no reason to wait until you’re already behind.