A $450,000 build with a 10% construction loan down payment means bringing $45,000 to the table and financing $405,000. At a sample 6.75% fixed rate after conversion, principal and interest is about $2,627 per month. Put down 20%, or $90,000, and the $360,000 loan is about $2,335 per month – a $292 monthly difference and roughly $17,520 in lower payments over the first five years. That is real money, but tying up another $45,000 is not automatically the smart move. I want buyers to protect cash for overruns, upgrades, and reserves before they chase the lowest possible payment.
Duane Buziak, NMLS #1110647
Table of Contents
- What a construction loan down payment covers
- Typical down payment ranges and land equity
- Credit, reserves, and closing-cost planning
- How construction financing becomes permanent financing
- Questions buyers ask before building
What a construction loan down payment actually covers
A construction loan is different from buying a finished home in Richmond, Glen Allen, or Midlothian. Instead of receiving the entire loan balance on day one, the builder receives draws as work is completed and inspected. During construction, many programs require interest-only payments on the outstanding balance. When the house is complete, a construction-to-permanent loan converts to the long-term mortgage.
Your down payment is generally calculated from the lesser of the completed appraised value or total project cost, depending on program guidelines and the broker’s investor. Total project cost usually includes the lot, construction contract, permits, plans, contingency, and certain approved site costs. The key word is approved. A beautiful wish list does not always become appraised value.
For conventional construction financing, many buyers should plan on 10% to 20% down. A stronger profile may qualify at the lower end, while a larger build, a second home, a lower credit score, or a more complex property can require more. VA-eligible borrowers may have a lower cash requirement in certain structures, but builder approval, appraisal support, entitlement, and program availability still control the result. There is no honest one-number answer.
Land you already own can be a major advantage. If you own a lot free and clear worth $80,000 and the finished project appraises at $500,000, that equity may satisfy some or all of the required contribution. The exact treatment depends on title seasoning, the lot’s value, construction contract, and program rules. Do not assume that every dollar paid for a lot automatically counts.
Local prices make the cash plan real
In Henrico County, the median sale price was about $410,000 in May 2025, according to Redfin market data. A 10% down payment at that price is $41,000 before closing costs, but a custom build can easily exceed the county median once lot work, utility connections, and finishes enter the picture.
The Richmond-area market has remained competitive for well-located newer homes, while inventory for buildable lots is far thinner than inventory for existing houses. That can push land prices higher and leave buyers negotiating with fewer choices. In Chesterfield County and around Short Pump, I regularly tell buyers to reserve room for site work and appraisal gaps instead of spending every available dollar on the down payment.
A reasonable planning target is 1% to 3% of the project cost for closing costs, although it varies by loan structure, title charges, escrows, discount points, and state taxes. On a $500,000 project, that is $5,000 to $15,000. Ask about our no-out-of-pocket closing options, but understand that an option to finance or offset costs can affect your rate or loan economics.
Credit and reserves matter as much as cash down
For many conventional construction options, a 680 score is a practical starting point, while 700 to 720 often gives the file more room for favorable pricing and exceptions. Some programs can work below that range, but lower scores can mean a larger down payment, more reserves, or a narrower set of available terms. Self-employed buyers using bank statements and investors using DSCR financing should expect additional documentation and program-specific requirements.
Reserves are money left after closing, usually measured in months of principal, interest, taxes, insurance, and association dues. Two to six months of reserves is common in construction scenarios, and larger balances, second homes, or multi-property investors can require more. That reserve account is not dead money. It is what keeps a weather delay or change order from becoming a financial emergency.
Before you ask a builder for a start date, use a soft credit pull mortgage review. A no hard inquiry mortgage pre approval conversation lets us review your estimated score profile, income, debts, down payment, and reserves without a credit hit. It is a practical first step when you are still comparing lots or finalizing plans. A full application may later require verification and a hard inquiry, but a mortgage pre approval without hard pull can help you identify issues early.
The break-even math after the build is complete
Construction-to-permanent financing can avoid a second closing, but some owners choose to refinance after completion if rates, equity, or program eligibility improve. Here is the math I use, not vague savings talk.
Assume you refinance a completed home and reduce principal and interest from $2,750 to $2,500 per month. That is $250 in monthly savings. If total closing costs are $7,500, the break-even point is $7,500 divided by $250, which equals 30 months. If you expect to keep the loan longer than 30 months, the refinance deserves a serious look. If you plan to sell in two years, it may not.
Freddie Mac’s Primary Mortgage Market Survey is the public benchmark I watch for weekly 30-year fixed-rate movement, but your actual quote depends on credit, occupancy, loan size, points, debt-to-income ratio, and lock timing. A quote is useful only when the terms are side by side: rate, annual percentage rate, points, lender credits, total cash due, and payment.
How the long-term refinance choices compare
Once construction is complete, the right refinance depends on what you need the new loan to accomplish. A rate-and-term refinance is about changing rate, term, or mortgage insurance. A cash-out refinance accesses equity within program limits. A VA IRRRL is a streamline option for an existing VA loan and is not a cash-out tool.
| Feature | Rate-and-Term Refinance | Cash-Out Refinance | VA IRRRL |
|---|---|---|---|
| Primary purpose | Lower rate, change term, or adjust payment | Replace loan and receive eligible equity proceeds | Refinance an existing VA loan with a streamlined path |
| Equity access | Limited to permitted incidental cash | Yes – up to 90% LTV conventional or up to 100% VA when eligible | No cash-out beyond permitted minor adjustments |
| Appraisal | Usually required | Usually required | May be waived when program conditions are met |
| Documentation | Income, assets, credit, and property review | Income, assets, credit, property, and equity review | Often reduced versus a full refinance |
| Best fit after a build | Long-term payment or term improvement | Funding eligible post-build needs without a separate loan | Veterans replacing an existing VA permanent loan |
I am opinionated about this: do not use a cash-out refinance simply because equity exists. Use it when the purpose improves your financial position and the new payment, term, and costs still make sense. Conventional cash-out is not the same as VA cash-out. Conventional may go to 90% loan-to-value, while eligible VA cash-out may reach 100%, subject to underwriting and property requirements.
Construction loan down payment FAQs
How much is a construction loan down payment?
Most buyers should plan for 10% to 20%, though program rules, credit, property type, and land equity can change the requirement.
Can land equity count as my down payment?
Yes, owned land may count when it meets program, title, valuation, and documentation requirements.
Do construction loans require a higher credit score?
Often, yes. A 680 score can be a useful baseline for many conventional options, with stronger flexibility around 700 to 720.
What are construction loan reserves?
They are verified funds remaining after closing, commonly measured as two to six months of housing payments.
Are construction payments fully amortized while building?
Usually no. Many construction phases use interest-only payments based on funds drawn, then convert to a permanent payment after completion.
Can I get prequalified without a hard inquiry?
Yes. A soft pull mortgage broker review can provide an early estimate without a hard credit hit.
What if the finished appraisal is lower than expected?
You may need to bring in more cash, reduce the project scope, renegotiate costs, or revise financing if permitted.
Can I refinance after my construction loan converts?
Yes. A rate-and-term refinance, cash-out refinance, or eligible VA IRRRL may fit, depending on the existing loan and your goals.
Build with margin, not wishful thinking
The best construction loan down payment is not necessarily the biggest one. It is the amount that helps you qualify while leaving enough liquidity to handle the parts of building that never show up on a showroom floor. Get the plans, lot, builder contract, and cash picture reviewed together. A no credit hit mortgage application conversation can show you where the pressure points are before a contract makes them expensive.
TheRefiGuy helps homeowners and buyers in Virginia, Florida, Tennessee, and Georgia compare construction financing and post-build refinance options with a soft-pull starting point. I was ranked #114 in Scotsman Guide’s 2025 Top Originators list with $44.4 million across 124 loans, followed by $51.2 million in 2026. The point is not the plaque. The point is getting complicated mortgage math explained clearly before you commit.
Legal disclaimer: Mortgage financing is subject to credit approval, property appraisal, program availability, underwriting requirements, and change without notice. Rates, payments, fees, and terms are illustrative unless shown in a formal loan estimate. This content is educational, not a commitment to lend. Duane Buziak is licensed to originate mortgage loans in Virginia, Florida, Tennessee, and Georgia only.
A well-planned build should leave you excited about the front door, not worried about the last invoice.
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.