Construction Loan

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Understanding the Construction-to-Permanent Loan

Building a home involves more decisions than purchasing an existing property, but the financing process does not have to feel overwhelming. An ORNL Federal Credit Union Construction-to-Permanent Loan (C2P) combines construction financing and permanent mortgage financing into one coordinated process, generally with one closing. This guide explains what you will need to get started, how funds are disbursed during construction, and what is required to transition to permanent financing.

Your Mortgage Loan Representative and Construction Loan Coordinator will work with you and your builder throughout the process, helping you understand upcoming requirements, responsibilities, and milestones.

The Basics

A Construction-to-Permanent Loan allows you to finance both the purchase of your lot and the construction of your home with a single closing. If you already own the lot, this loan can be used for construction costs. Any existing mortgage on the lot will also be rolled into the financing.

The Benefits

One coordinated financing process: Finance eligible lot acquisition, construction costs, and permanent mortgage financing through one loan program, generally with one closing.

Interest-only payments during construction: During the construction phase, payments are generally based on interest accrued on the amount advanced rather than the full approved loan amount.

Rate protection: Secure the permanent mortgage rate before construction begins, subject to the terms of the rate-lock agreement. If eligible, a float-down option may allow the permanent rate to be reduced if market rates decline.

Flexible permanent financing: Select from available fixed- and adjustable-rate mortgage options based on your qualifications and financing needs.

Use your lot equity toward your contribution: If you already own your homesite, eligible equity in the land may count toward your required contribution, subject to valuation, lien, title, and underwriting requirements.

What to know before committing

Before spending significant money on plans or committing to a builder, start with a conversation with an ORNL FCU Mortgage Loan Representative. We can discuss your budget, land ownership, proposed project, timeline, and financing goals, then help you understand the next steps for pre-approval, builder qualification, project review, closing, construction draws, and permanent conversion.

CONSTRUCTION AND TIMELINE FAQS

Our standard construction period is 12 months. For qualifying projects over one million, an 18-month construction period may be available. For larger, more complex projects with construction costs exceeding $3 million, additional time may be considered based on the scope and anticipated completion timeline. These situations are evaluated individually and must be approved in advance.
If your project is approaching its scheduled completion date and additional time is needed, your Construction Loan Coordinator will work with you and your builder to understand the status of the project and determine whether an extension request is appropriate. Extensions are reviewed and approved based on the individual circumstances of the project and are granted in two-month increments beyond the original conversion date, up to the 24-month maximum.
Our construction loans typically allow for a maximum construction period of 24 months, including approved extensions. For larger, more complex projects with construction costs exceeding $3 million, additional time may be considered based on the scope and anticipated completion timeline. These situations are evaluated individually and must be approved in advance.

Financial requirements and eligible costs

Your maximum loan amount is based on both your financial qualifications and the approved project. ORNL FCU considers factors such as the property's appraised value in its proposed as-completed condition, eligible project costs, applicable loan-to-value requirements, debt-to-income guidelines, credit qualifications, and the specific loan program selected. Your Mortgage Loan Representative will help determine the structure that best fits your project and qualifications.

FINANCIAL FAQS

There is not one right answer for every member. The best approach depends on how far along you are with your plans, builder, budget, and construction timeline.

Purchase the land first	Land + construction together
A land loan can be a good option if you have found the right homesite but need more time to select a builder, complete plans and specifications, finalize your budget, or prepare for construction without feeling rushed.	If you are ready to move forward with the full project, an eligible C2P structure may allow the land acquisition, construction financing, and permanent mortgage to be coordinated through one loan process, generally with one closing.
When you later move into C2P financing, eligible equity you have built in the land may be considered toward your required contribution, subject to valuation, title, lien, and underwriting requirements.	This can reduce the need for a separate land-loan closing and may simplify the transition from acquiring the property to building the home.
Keep in mind that financing the land separately and later completing a C2P loan generally means two loan closings and therefore two sets of applicable closing costs.	This option may be a better fit when your builder, plans, specifications, contract, budget, and construction timeline are already sufficiently developed for project review.

Your Mortgage Loan Representative can walk through both options with you before you commit so you can balance timing, available equity, closing costs, and how prepared you are to begin construction.

Eligible costs are determined during project review using your plans, specifications, construction budget, and signed building contract. Any work, materials, upgrades, or features you plan to purchase or complete separately from the builder's contract should be disclosed so ORNL FCU can determine how they should be reflected in the budget, appraisal, or loan documentation.
A contingency reserve may be required to help protect the project against unexpected construction costs. The amount depends on the contract structure and project. Cost-plus contracts may require additional contingency funds because the final project cost can change as construction progresses. Fixed-price contracts can provide more cost certainty, but allowances, change orders, owner selections, exclusions, and unforeseen conditions can still affect the final cost.
The appraisal is based on the property's proposed as-completed condition and helps determine the amount ORNL FCU can finance. If the appraised value does not support the requested loan structure, we will review the options with you. Depending on the circumstances, this could mean adjusting the project, contributing additional funds, or revising the loan amount.

Preparing your application

1. Talk with a Mortgage Loan Representative

2. Get pre-approved

A pre-approval will help determine your loan amount and ensure you meet the financial qualifications for a Construction-to-Permanent Loan. ORNL FCU will review your income, assets, liabilities, and credit history as part of the

approval process. Pre-approval provides an initial assessment of how much you may be eligible to borrow based on your income, assets, liabilities, and credit history. It is not a final loan approval or commitment to lend.

Builder and project approval

Find a Qualified Builder

Choosing the right builder is one of the most critical steps in your construction journey. ORNL FCU requires builders to be licensed, insured, and financially stable. Your builder must complete a Builder Questionnaire outlining their experience and past projects before being approved for our Construction Loan program.

Builder acceptance confirms that the builder meets program requirements; it is not an endorsement or guarantee of the builder’s work. ORNL FCU reviews whether the builder satisfies current program requirements; however, the selection of the builder and evaluation of the builder’s work remain the borrower’s responsibility.

Blueprints and a detailed cost breakdown will be required for the loan approval process. Any work, materials, or features the borrower plans to purchase or complete separately from the builder’s contract must be disclosed during project review. ORNL FCU will determine whether those items must be included in the construction budget, appraisal, or loan documentation.

Our team is committed to supporting you throughout the construction loan process. Because the construction contract is directly between you and your builder, you are responsible for resolving matters related to construction, workmanship, and build quality, making it especially important to carefully vet and select a qualified, reputable builder.

BUILDER & PROJECT FAQS

Potentially, depending on the circumstances. A builder change during construction requires ORNL FCU review and approval before the new builder begins work. The replacement builder must meet current qualification requirements, and any new or revised contract, plans, specifications, budget, or other project changes must be reviewed and approved. Our team will work as a liaison throughout the process and will make every reasonable effort to help the member and builder address concerns early so the project can continue as smoothly as possible.

Closing and borrower contribution

After project approval, your loan application will be underwritten like a standard mortgage. ORNL FCU will review both your financial qualifications and the proposed construction project before the loan may proceed to closing. Timing depends on how complete the borrower and project documentation is, including builder approval, plans and specifications, construction budget, contract, appraisal, title work, underwriting, and any outstanding conditions. The best way to keep the process moving is to involve your Mortgage Loan Representative early and provide complete project information as it becomes available.

Once approved, we will schedule your closing where all necessary funds will be set up in a construction account as future disbursements are requested.

At closing, any funds you contribute to cover the contract amount will be deposited into your construction checking account with a hold placed. These funds will be used first for draws before the construction loan disbursements begin.

Construction may begin after the loan has closed, ORNL FCU’s deed of trust has been recorded, required permits have been issued, and ORNL FCU has provided authorization to proceed.

Draws, inspections, and monthly payments

Construction loan disbursements are based on project milestones. Each $5000 minimum draw pays for work completed and must be verified through site visits or progress pictures. A fee is charged per site visit. Funds are collected at closing to cover these site visit fees. If any funds remain at completion, they will be released to you. However, if additional funds are required for site visits, you will be responsible for covering these costs. Interest payments are due by the 15th of each month during the construction phase. The interest amount is calculated based on the outstanding balance. A monthly account statement showing your construction checking account and construction loan is generated on the first of each month reflecting the interest payment due.

Draw Process Step-by-step:

1. Builder requests the draw. The builder initiates the draw request based on completed work and the agreed draw schedule.

2. The borrower reviews and approves it. No builder draw is released without the borrower's consent. ORNL FCU obtains confirmation by email and verbal approval.

3. Required support is reviewed. Applicable inspections, invoices, lien waivers, or other supporting documentation are reviewed based on the project and draw.

4. Funds are released as authorized. Approved funds may be sent directly to the builder.

5. Interest adjusts with the amount advanced. During construction, interest-only payments are based on the funds that have actually been advanced, rather than the full approved loan amount.

Draws designed to keep your project moving
We target a 48-hour turnaround once a complete draw request and required documentation, approvals, and inspections have been received.

DRAWS & INSPECTIONS FAQS

Completion and permanent financing

Your loan will transition to permanent financing after construction is complete and all conversion requirements have been satisfied. The conversion must occur within the construction period stated in your loan documents unless ORNL FCU approves an extension.

In some cases ORNL FCU will reverify employment, income, credit, occupancy, insurance, or other qualifications before conversion. To ensure a smooth transition, the Construction Coordinator will need the following documents:

Final appraisal report confirming 100% project completion.
Certificate of Occupancy (CO), usually provided by the contractor.
Recorded Notice of Completion (NOC), notarized and filed with the county Register of Deeds.
Verification of a paid homeowner’s insurance policy listing ORNL FCU as the mortgagee.
Final interest payment completed.
Establish an escrow/impound account (if chosen).

PERMANENT FINANCING FAQS

One of the benefits of the C2P program is the ability to secure your permanent mortgage rate before construction begins while still having an opportunity, if eligible, to take advantage of a lower rate before permanent conversion. This can provide meaningful flexibility because an eligible rate reduction can be handled as part of the conversion process rather than requiring the member to complete a separate refinance with a new set of closing costs.
Float-down eligibility is evaluated after the home has received its Certificate of Occupancy (CO) and before the loan converts to permanent financing. As you approach conversion, your Construction Loan Coordinator will have the Mortgage Loan Representative who originally worked with you reconnect to review the available option and whether it may be beneficial based on current pricing and your loan.

Property taxes and required insurance remain part of the overall property obligations throughout the process. How they are collected and paid can depend on the loan structure and escrow requirements. Your loan team will explain how these items will be handled for your specific loan before closing and again as the loan approaches permanent conversion.

Contact information and next steps

Ready to begin planning your home? Connect with an ORNL FCU Mortgage Loan Representative to discuss your budget, property, builder, and financing options before finalizing construction plans or signing a contract.

CHIP GOODWYN
Construction-to-Perm Coordinator
NMLS ID #857851
865.560.7467
cgoodwyn@ornlfcu.com

TRACY LIVERMAN

Construction-to-Perm Coordinator

NMLS ID #2260706

865.425.3335

tliverma@ornlfcu.com

HOME BUILDING MADE EASIER

Understanding the Construction-to-Permanent Loan

What to know before committing

How long do I have to complete construction?

What happens if construction is delayed?

Are there fees for an extension?

What if my home is not completed by the end of the construction period?

Financial requirements and eligible costs

Can the equity in my lot count toward my contribution?

How much money will I need at closing?

Should I Buy the Land First or Finance the Land and Construction Together?

What costs can and cannot be included in the loan?

Are reserves required?

When might a contingency reserve be required?

What happens if the appraisal is lower than the project cost?

Preparing your application

Builder and project approval

Can I act as my own general contractor?

Can construction begin before closing?

Can I change builders after closing?

What insurance is required during construction?

Closing and borrower contribution

Draws, inspections, and monthly payments

How quickly are draw requests processed?

Who approves and receives each draw?

How often can draws be requested?

Are Site Visits inspections and draw fees charged?

Completion and permanent financing

What is the float-down option?

When am I eligible for a float-down?

Does an extension affect float-down eligibility?

Will my credit, income, or employment be reviewed again before conversion?

When will principal-and-interest payments begin?

How are property taxes and insurance handled?

Contact information and next steps