Construction Loans in Tennessee: How to Finance Building Your Dream Home

Building a custom home in Tennessee can be exciting, but financing the project works differently than buying an existing house.

A construction loan is designed to fund your home as it comes together. Instead of receiving one lump sum at closing, your builder receives funds in stages. Once construction is complete, the loan can convert into a long-term mortgage.

For many Tennessee families, this creates a practical path from an empty lot to a home built around their needs, lifestyle, and future.

At CFC Mortgage, we help borrowers understand their options and choose a loan structure that fits their project. We’re a mortgage broker in Tennessee, not a bank, so we work for you, not the lender.

Your Dream Home, One Clear Step at a Time

Construction financing can sound complicated at first. The basic process is easier to understand when you break it into stages:

1. You select your land or lot.
2. You choose a qualified builder.
3. Your plans, budget, and construction contract are reviewed.
4. The property is appraised based on the completed home.
5. The loan closes.
6. Funds are released through construction draws.
7. The loan converts to your permanent mortgage when the home is finished.

The details vary by loan program and lender, but this is the general path for most construction-to-permanent loans.

What Is a Construction-to-Permanent Loan?

A construction-to-permanent loan, also called a one-time-close construction loan, combines your construction financing and long-term mortgage into one loan.

During construction, the loan provides funds for approved building costs. After the home is completed, the loan converts into permanent mortgage payments, often without requiring a second closing.

This can help simplify the process and may reduce the possibility of paying closing costs twice. Depending on the program, your permanent interest rate may be established at the beginning of the process. That can provide more certainty while your home is being built.

Your payments during construction are often interest-only. In many programs, you pay interest based on the amount that has actually been drawn, not the full approved loan amount. Some specialized programs may have different payment structures, so it’s important to review the details before choosing a lender.

One-Time Close vs. Two Separate Loans

There are two main ways to finance a custom build.

One-time close

• One application and one closing
• Construction financing and permanent mortgage combined
• Funds released in stages during the build
• May avoid a second closing
• May provide more payment and rate certainty

Two-time close

• A construction loan is closed first
• A separate permanent mortgage is arranged later
• You may need to qualify again before the permanent loan
• You may pay closing costs on both loans
• The permanent loan terms are selected closer to completion

A two-time close may be appropriate for certain projects or borrowers. A one-time close may offer a simpler experience. We’ll help you compare both options based on your income, credit, land, builder, and long-term goals.

How Construction Draws Work

Construction lenders generally do not release the entire loan amount at once. Instead, the builder receives money through draws as specific stages of work are completed.

A typical draw schedule may include:

• Land acquisition or payoff
• Site preparation and foundation
• Framing and roof
• Plumbing, electrical, and HVAC
• Drywall, flooring, and interior work
• Final completion and inspections

Before closing, the lender reviews the construction budget and establishes a draw schedule. When a milestone is complete, the lender may inspect the work before releasing the next funds.

This process helps keep the project connected to the approved budget. It also gives everyone (you, the lender, and the builder) a clear view of how funds are being used.

Construction draws are not identical with every lender. The number of draws, inspection requirements, fees, and timing can vary. That’s one reason having an experienced mortgage broker Tennessee borrowers can call directly is valuable.

Can You Build on Land You Already Own?

Yes, in many cases.

If you already own the lot or acreage, the land may contribute equity toward the project. The lender will typically review the land’s value, whether there is an existing lien, and how the land fits into the completed-home appraisal.

For example, if you own land free and clear, its acceptable value may help reduce the amount of cash you need to bring to closing. If you still have a loan on the land, the construction financing may need to pay off that balance or include it in the overall project structure.

The exact treatment depends on:

• The land’s appraised value
• Any outstanding land loan
• The completed home’s value
• The loan program
• Your credit, income, and assets
• The lender’s construction guidelines

If you do not own land yet, some construction programs can combine the purchase of raw land or a finished lot with the construction financing. Other situations may require separate land financing first.

If you’re buying raw land, ask about access, utilities, zoning, septic requirements, road frontage, and permits early. A beautiful piece of property still needs to work as a buildable homesite.

Your Builder, Plans, and Appraisal Matter

Construction lenders need more than a pre-approval. They also need a clear picture of what you plan to build.

You’ll usually need:

• A licensed and insured general contractor
• A signed construction agreement
• Architectural plans and specifications
• An itemized project budget
• A projected construction timeline
• Information about permits and site work
• Builder references or documentation, depending on the lender

The lender will also order an appraisal based on the completed value of the home. The appraiser reviews your plans, specifications, land, location, and comparable properties to estimate what the home should be worth when finished.

This is sometimes called an appraisal “subject to completion.” If the finished home is expected to be worth less than the total project cost, you may need to change the plans, increase your contribution, or reconsider the property.

That review is not meant to discourage your vision. It helps make sure the financing supports a realistic project.

How Much Do You Need for a Down Payment?

Down payment expectations vary widely.

For conventional construction loans, many borrowers should be prepared for a down payment in the range of approximately 10% to 20%, although the actual amount depends on the lender, project, credit profile, land equity, and completed value.

Some eligible borrowers may have access to lower-down-payment programs:

• FHA construction programs may allow a minimum down payment of 3.5% for qualifying borrowers.
• VA construction programs may offer eligible veterans and active-duty service members low- or no-down-payment options.
• USDA construction programs may provide low- or no-down-payment financing in eligible rural areas for qualified borrowers.
• Land equity may count toward part or all of the required contribution in certain situations.

These options are not automatic, and construction availability can vary by lender. Your income, credit history, debt, property type, location, and builder all matter.

If you’re a first time home buyer in Tennessee, we’ll explain the options in plain English and help you understand how your land, savings, gift funds, or other resources may fit into the project.

How Long Does Building Take?

Many construction loans are structured around a building period of approximately 12 months. Some projects may receive more time, especially if the home is larger, the lot requires significant preparation, or the loan amount is higher.

Your timeline can be affected by:

• Weather
• Material availability
• Permit delays
• Change orders
• Contractor schedules
• Site conditions
• Inspections
• Utility installation

It’s wise to build some flexibility into both your budget and your expectations. Ask your builder how long each phase should take, and ask your lender what happens if construction runs longer than planned.

During the build, you may make interest-only payments based on the amount drawn. Once the home is complete and the loan converts, you’ll typically begin making regular principal-and-interest mortgage payments.

What to Have Ready Before You Apply

Starting early can make the process smoother. Before applying, gather:

• Recent income and employment information
• W-2s or tax returns, if applicable
• Bank and investment account statements
• Details about existing debts
• Information about land you own or want to purchase
• Your estimated construction budget
• Builder contact information
• Preliminary plans or house specifications
• An estimate of your available down payment

If you’re self-employed, receive commission income, use alternative income documentation, or plan to use gift funds, mention that early. The right lender may have a solution, but the details need to be reviewed up front.

And remember: the lowest advertised Tennessee mortgage rates may not always come with the best construction program for your project. The right financing should balance rate, fees, flexibility, builder requirements, timeline, and long-term payment.

Why Work With CFC Mortgage?

At CFC Mortgage, we work for the borrower, not the bank.

We have access to 30+ premium lenders, giving you more choices than a traditional bank may offer. With more options, we can look for a construction program that fits your land, plans, income, and goals.

We also charge:

• No broker fees
• No origination fees
• No discount points
• No underwriting fees

Our team has more than 26 years of mortgage experience, and we’re fully licensed in Tennessee, Florida, and South Carolina. From our home base in Hendersonville, we help neighbors throughout Tennessee understand their home loans and move forward with confidence.

Ready to Start Building?

You don’t have to have every answer before you reach out.

Whether you already own land, are searching for a homesite, or are still comparing builders, we can help you understand what comes next. We’ll review your goals, explain one-time-close and two-time-close options, and shop 30+ lenders for a solution that fits your unique situation.

Learn more about construction loans, apply online, or contact CFC Mortgage to speak with a local mortgage professional.

Your custom home starts with a plan. We’re here to help make the financing part clear, manageable, and personal.