Construction Loans in Michigan: One Closing, Not Two
You are not financing a construction project and then financing a mortgage. You are signing one loan that funds the build and converts to your permanent mortgage when the house is finished. One closing. One set of costs. Your permanent rate locked before the foundation goes in.
A one-time close construction to permanent loan funds your build and converts to a permanent mortgage without a second closing. In Michigan, VA and USDA may reach 100% financing, FHA reaches 96.5% and conventional reaches 95%, with construction periods typically running four to twelve months and three to twelve draws. Your permanent rate is set at closing, not when the house is done.
VA and USDA
Period
the Build
Sets of Costs
Construction guidelines vary more between agencies than almost anything else we do, and they move. Every figure on this page is accurate as of the last revision and any of it could change next month. Before you sign a builder contract or write an offer on a lot, ask us what today's version says. A guideline you read on a web page is not a loan approval.
What One-Time Close Actually Means
There are two ways to finance a house that does not exist yet.
The old way, still common at community banks, is two closings. You take a short-term construction loan, usually twelve months, usually interest only, usually at a floating rate. When the house is finished you refinance into a permanent mortgage. That is a second application, a second underwrite, a second appraisal and a second set of closing costs, at whatever rates and whatever guidelines exist on the day you finish.
The one-time close way is a single loan. You close once, before construction starts. The loan funds the build through a draw schedule, and when the house is complete it converts to the permanent mortgage you already agreed to. No second underwrite. No second closing costs. No gamble on what rates do between the foundation and the final inspection.
The real value of one-time close is not saving a set of closing costs, though you do. It is that your qualification is locked in on day one. With a two-close structure you have to qualify twice, and plenty can change in ten months. A job change, a credit event, a guideline tightening, a shift in rates. We have watched borrowers get through construction and then fail to qualify for the permanent loan on a house they already built.
With one-time close that risk is gone the day you sign.
The Programs, and What Each One Allows
This is where construction lending gets genuinely different from the rest of the mortgage world. The agencies do not agree with each other on much, and the gaps between them are large enough to decide which loan you should use.
Conventional, through Fannie Mae and Freddie Mac
Up to 95% loan-to-value on an owner occupied primary residence, with 15, 20 and 30 year fixed options rather than 30 year only. Second homes are typically capped around 90%, which makes conventional the only realistic path if you are building a cottage you will not live in full time. Credit requirements generally follow automated underwriting rather than a fixed floor. More on conventional loans.
Conventional is also the most forgiving on land you already own, and the only group that permits recasting or loan modification after the fact. One more oddity worth knowing: Fannie Mae currently lists 3D printed homes as eligible collateral, which almost no lender has caught up with.
FHA
Up to 96.5% loan-to-value with a minimum credit score of 620, on a 30 year fixed. FHA is the usual answer when credit is the constraint rather than income. The thing to watch on FHA is lot seasoning: if you already own the land, FHA generally wants six months of ownership before the transaction can be structured the way you want it. More on FHA loans.
VA
Up to 100% loan-to-value for eligible veterans and service members, minimum credit score 620, 30 year fixed less the construction period. No down payment and no monthly mortgage insurance make this the strongest construction program available to anyone who qualifies for it. More on VA loans.
Two VA quirks that work in your favor. Construction interest can be paid by the builder rather than you, depending on how the contract is written. And builder's risk insurance is paid by the builder at closing. The quirk that does not work in your favor: VA generally wants a full year of lot seasoning. If you bought land last spring and want to build on VA, tell us when you bought it before you plan anything.
USDA Rural Development
Up to 100% loan-to-value in eligible rural areas, minimum credit score 620, 30 year fixed. In Northern Michigan, USDA eligibility covers far more ground than people assume. A great deal of land outside Traverse City proper qualifies. More on USDA loans.
Two constraints. Properties in flood zones are not eligible on USDA, unlike the other programs. And while 620 is the stated minimum, scores in the low 600s may struggle to get through the USDA automated system regardless of what the floor says. We will tell you honestly where you sit before you get attached to a lot.
Manufactured homes
This one surprises people, including other lenders. Construction to permanent financing is available on new manufactured homes, which most lenders cannot do at all. FHA reaches 96.5% with credit scores from 580. VA and USDA reach 100%. The conventional MH Advantage and CHOICEHome programs reach 97%, and single wide homes are eligible on conventional programs up to 95%. Full manufactured home detail.
In a region where manufactured housing is a serious share of the market, being able to build one new rather than buy one used is a door most buyers do not know exists.
If You Are Self-Employed, Read This Before You Sign a Builder Contract
This is the single most expensive thing on this page and almost nobody publishes it.
If you are self-employed, your maximum loan-to-value depends on how long the construction period is. At eight months or less, you are at 95%, the same as anyone else. At nine months or more, it drops to roughly 80%.
On a $500,000 build that is the difference between $25,000 down and $100,000 down. Same borrower, same house, same builder. The only thing that changed was a line in the contract about the construction schedule.
Owning 25% or more of a business makes you self-employed for these purposes, even if you also take a W2 from it. That catches a lot of people who do not think of themselves that way.
Maximum debt-to-income moves the same direction, from 47% at eight months or less down to 43% at nine months or more. And the minimum credit score for a self-employed construction file is typically 700, rather than following automated underwriting the way a W2 file does.
None of this means you cannot build. It means the construction schedule is a financing decision, not just a scheduling decision, and it needs to be made before the contract is signed rather than after.
If your income is difficult to document on tax returns on top of all this, that is a separate conversation and there are other documentation routes worth looking at first.
You Already Own the Land
Good. In most cases the lot becomes your down payment, and if it has appreciated since you bought it, that equity counts.
How it gets structured depends on the agency, and so does how long you need to have owned it:
Conventional and USDA: generally one day of seasoning. Bought it last week, that works.
FHA: generally six months.
VA: generally one full year.
On conventional the transaction is typically structured as a refinance. On FHA, VA and USDA it is generally structured as a purchase with the lot equity applied. The practical difference rarely matters to you, but the seasoning requirement absolutely does. Tell us the date you bought the land in the first conversation.
One caution: seasoning can also affect how much of the lot value is usable. If you bought recently and well below market, do not assume the appraised value is what counts.
How Draws Work
Construction funds are not handed over at closing. They release in stages, called draws, as the work gets done. Typical schedules run between three and twelve draws depending on the build and what the builder needs.
Each draw is inspected before funds release. That inspection is protecting you as much as the lender, because it confirms the work was actually completed before anyone gets paid for it.
The tradeoff is simple. More draws means more inspections and more administration, but the builder carries less cost between payments. Fewer draws means less paperwork and a builder financing more of the work himself. Most builders have a strong preference, and it is worth asking yours before the schedule is set rather than negotiating it afterward.
You pay interest only on what has been drawn, not on the full loan amount, so the payment during construction climbs gradually as the house goes up.
What You Pay, and When
The construction phase works differently from a normal mortgage in three ways that are worth knowing up front.
Your first payment is later than you expect. The first construction interest and escrow payment is typically due on the tenth of the second full month after closing. Close June 30 and your first payment is generally due August 10. Close July 15 and it is generally due September 10. Payments during the construction phase are due on the tenth rather than the first.
No mortgage insurance until conversion. If your loan-to-value calls for mortgage insurance, it is not established until the loan converts to the permanent mortgage. You do not pay it during the build. You will still receive a 1098 for the interest paid during construction.
Escrow is collected at closing, and it is more than a normal purchase. You will typically fund several months of taxes based on the land value, a smaller number of months based on the finished house value, the first year of homeowners insurance, and a couple of months of insurance reserves.
That last one surprises people at the closing table, so here is the reasoning. Taxes on a vacant lot are low. Taxes on a finished house are not. If escrow were collected based only on what the property is worth today, you would be hit with a large escrow shortage the year after the assessment catches up. Collecting it up front means the payment you convert to is the payment you keep.
Some structures also allow escrow-only payments during construction, for example where a builder is covering construction interest on a VA file. Exact amounts vary by property and are subject to change, so confirm the specific figures for your loan.
What These Loans Will Not Build
Better to find this out now.
Ineligible property types: condominiums, metal homes, tiny homes, barndominiums, homes with in-law suites, and off-grid properties.
Ineligible arrangements: owner builder, where you act as your own general contractor. Cost-plus contracts. Sweat equity. Non-occupant co-mortgagors. HELOCs behind the loan.
Cannot be combined: down payment assistance and housing finance agency programs are not permitted on construction to permanent loans. If down payment assistance is central to your plan, building is probably not the right path and we should talk about buying instead.
The owner builder exclusion is the one that disappoints people most often. If your plan was to save money by managing the build yourself, that plan does not work with this financing, and it is much better to hear that before you buy the land.
Builder Acceptance
Your builder goes through a review before the loan can proceed. It generally takes about a week provided everything is submitted together, and an acceptance is typically valid for one year, so a builder who has already been reviewed does not need reviewing again.
Note the wording, because it matters internally: it is builder acceptance, not builder approval. There are also two separate reviews running, one looking at the builder and one looking at how the loan itself is structured. A builder clearing the first does not mean the second is done.
If a builder is reluctant to provide the documents, a recommendation still gets made on whatever was submitted, but the odds get worse. A builder who has done this before will hand everything over without being chased, which is itself a useful signal about the builder.
We work with builders across Northern Michigan and keep track of who is already accepted. More for builders here.
Why Northern Michigan Is a Construction Market
People build here for reasons that do not apply downstate.
The inventory is not there. In a market this tight, with this much of the housing stock either seasonal or decades old, building is frequently the only way to get the house you actually want on the land you actually want.
Land is available and houses are not. Across Wexford, Missaukee, Kalkaska, Antrim and Benzie counties there is plenty of buildable acreage and very little move-in-ready inventory in the range most buyers are shopping.
USDA covers more of it than people think. A large share of the land people are looking at up here sits inside USDA eligible boundaries, which means a build with no down payment is on the table far more often than borrowers expect.
The season is short. A build that starts in April and a build that starts in September are different financing conversations, because the construction period length drives the guidelines. This is where most lenders who do not work in this market give bad advice.
What to Send Us to Start
You do not need all of this to have the first conversation. You need it before a file can move.
The builder's name and contact information. The construction contract or bid, with the construction timeline in it. Plans and specifications. The lot, either the purchase agreement or, if you own it, the deed and the date you bought it. Two years of tax returns and W2s, or business returns if self-employed. Two months of bank statements. Your most recent pay stubs.
The one we ask for first, and the one people have not thought about, is the construction timeline. Everything else is standard. That number decides your program.
How a Construction Loan Actually Runs
Six stages. The first one is the one most people skip.
Talk before you sign
Before the builder contract. The construction timeline in that contract drives your program, your maximum loan-to-value and your debt-to-income ceiling. This conversation costs nothing and changes everything.
Pre-approval and structure
We run the income, credit and assets, confirm which agency fits, and figure out whether the lot is a purchase or equity you already hold. You find out what you can build before you fall in love with plans.
Builder acceptance
Your builder submits documentation for review. Roughly a week if it all arrives together. An acceptance lasts a year, so an already-reviewed builder skips this entirely.
Appraisal and underwriting
The appraisal values the house that does not exist yet, from the plans and specifications. Underwriting reviews the file and the construction structure together. Automated approval is required on these loans, so there is no manual underwrite path.
One closing
You sign once. Escrow funds, the permanent rate is set, and construction can begin. Your first payment is typically due the tenth of the second full month after this date.
Draws, then conversion
Funds release in stages as work is inspected and completed. When the house is finished the loan converts to your permanent mortgage. No second closing, no second underwrite, no second set of costs.
Construction Loan Questions, Answered Straight
The ones borrowers actually ask, with the answers we actually give.
It is a single loan that covers the construction period and then converts to your permanent mortgage without a second closing. You sign once, you pay closing costs once, and your permanent rate is set up front. The alternative, a two-close structure, means financing the build with one lender and then refinancing into a mortgage when the house is done, which puts you back through underwriting at whatever rates exist that month.
It depends on the program. On an owner occupied primary residence, USDA and VA can reach 100% loan-to-value for eligible borrowers, FHA reaches 96.5%, and conventional Fannie Mae and Freddie Mac reach 95%. Second homes are more limited, generally 90% on conventional and not available on the government programs. These are maximums, not guarantees, and the actual figure depends on credit, income, the appraisal and full underwriting.
Significantly, and in a way most lenders do not mention until late. If you are self-employed, the maximum loan-to-value holds at 95% when the construction period is eight months or less, and drops to roughly 80% once the construction period is nine months or longer. Maximum debt-to-income moves the same direction, from 47% down to 43%. Minimum credit score is typically 700 rather than following automated underwriting. Owning 25% or more of a business counts as self-employed. If you are planning a long build, the length of your construction schedule changes how much you need to put down, so it is worth deciding that before you sign a builder contract.
Construction periods typically run from four to twelve months. If the build runs past the approved period, an extension requires senior management approval and carries a fee, typically a one-time charge plus a monthly percentage of the loan amount. Northern Michigan winters make this a real consideration rather than a formality, which is why we talk about the schedule before the loan is structured rather than after.
Typically between three and twelve, depending on how the build is structured and what the builder needs. Each draw is inspected before funds release. More draws means more inspections and more administration, fewer draws means the builder carries more cost between payments. Most builders have a preference and it is worth asking yours early.
The first construction interest and escrow payment is typically due on the tenth day of the second full month after closing. If you close on June 30, your first payment is generally due August 10. If you close July 15, it is generally due September 10. Payments during construction are due on the tenth of each month. This is current servicing practice and is subject to change, so confirm the specific dates for your loan at closing.
Not during construction. Mortgage insurance is not established until the loan converts to permanent financing. If your loan-to-value calls for mortgage insurance, it begins at conversion rather than at closing. You will still receive a 1098 for the interest paid during the construction period.
More than on a standard purchase, and deliberately so. Escrow is typically collected at closing rather than at completion, which generally includes several months of taxes based on the land value, a smaller number of months based on the completed house value, the first year homeowners insurance premium, and a couple of months of insurance reserves. The reason is simple. Collecting it up front means you are not handed a large unexpected escrow shortage once the house is finished and the assessment catches up. Exact amounts vary by property and are subject to change.
No. Owner builder arrangements are not eligible on these programs, and neither is sweat equity or a cost-plus contract. You need a licensed builder who goes through builder acceptance. This disappoints people who were planning to save money by managing the build themselves, and it is better to hear it now than after you have bought the land.
Yes, and owning the lot often becomes your down payment. How it is structured depends on the program. On conventional, the transaction is generally structured as a refinance, and the lot can be used with as little as one day of seasoning. USDA is also typically one day. FHA generally requires six months of ownership, and VA generally requires a full year. If you bought land recently and are planning a VA build, that timeline matters, so tell us when you bought it.
Condominiums, metal homes, tiny homes, barndominiums, homes with in-law suites and off-grid properties are generally not eligible collateral. Down payment assistance and housing finance agency programs cannot be combined with these loans, and HELOCs and non-occupant co-mortgagors are not permitted. Worth noting on the other side: Fannie Mae currently lists 3D printed homes as an eligible property type, which is not something most lenders have gotten to yet.
Your builder goes through a review before the loan can proceed. It generally takes about a week provided the builder submits everything at once, and an acceptance is typically valid for one year, so a builder we have already reviewed does not need reviewing again. Note the wording: it is builder acceptance, not builder approval. The two reviews are separate as well, one looking at the builder and one looking at how the loan itself is structured.
On most programs the borrower does. VA is the exception, where it can be paid by either the builder or the borrower depending on how the contract is written. Builder's risk insurance can be provided by either party on most programs, though on VA the builder pays for it at closing. These are the kinds of details that belong in the builder contract conversation, not discovered at the closing table.
Related Programs
Each agency handles construction differently. Start with the one that fits your situation.
Call Us Before You Sign the Builder Contract
Not after. The construction timeline in that contract decides which program you qualify for and how much you need to put down. That is a ten minute conversation that can be worth tens of thousands of dollars, and it costs nothing.
Program guidelines subject to change. All program parameters described on this page, including minimum credit scores, loan-to-value limits, debt-to-income limits, construction period lengths, draw counts, seasoning requirements and fees, are agency and investor guidelines that may change at any time without notice. Figures shown represent the range across multiple programs. No single program offers every figure listed and no borrower qualifies for the most favorable figure in every category simultaneously. Contact us to confirm current guidelines before relying on any figure on this page.
Not a commitment to lend. This page is for informational purposes only and does not constitute a loan commitment, pre-approval, or offer of credit. All loans are subject to credit approval, income and asset verification, property eligibility, satisfactory appraisal, builder acceptance and full underwriting review. Rates and terms change daily and are subject to market conditions. Not all applicants will qualify.
Construction timelines and payment dates are estimates. Construction periods, draw schedules, inspection timing, first payment dates and escrow amounts vary by loan, property and servicing practice, and are subject to change. Any dates or amounts described here are illustrative only and will be confirmed in your loan documents at closing.
Angie Anderson NMLS #1999286. Kirby Slocum NMLS #680817. Union Home Mortgage Corp. NMLS #2229229. Equal Housing Lender. Union Home Mortgage Corp., 8241 Dow Circle West, Strongsville, OH 44136.
