Construction-to-permanent is the usual path
Most Central Iowa clients use a construction-to-permanent loan through a local bank or credit union. You close once, before construction. During the build it functions as a line of credit that the lender advances in stages. At completion it converts to a standard mortgage without a second closing or a second set of fees.
The alternative — a standalone construction loan followed by a separate permanent mortgage — means two closings, two sets of costs, and requalifying at whatever rates exist when the house is finished. Most people prefer to avoid that.
What lenders want to see
- Down payment. Commonly 10–20 percent of total project cost. Land you already own frequently counts toward it, sometimes at appraised value rather than what you paid.
- A builder's contract with a real scope. This is where a line-item budget matters. A vague per-square-foot number slows underwriting down.
- Plans and specifications. The appraiser values the finished house from these, so they need to be complete.
- Contingency. Many lenders require five to ten percent held back for changes. Treat it as insurance, not spending money.
How draws work
The lender releases money in stages as work is completed — typically at foundation, framing, mechanical rough-in, drywall, and completion. Each draw involves an inspection to verify the work exists before the money moves. We deal directly with your lender's draw schedule and inspector, so you are not relaying paperwork between two parties who both do this for a living.
Interest during construction
You pay interest only on the money drawn so far, not the full loan amount, and usually interest-only until completion. Payments start small and grow as the house does. Budget for those payments alongside whatever housing cost you have during the build, because most people are paying rent or a mortgage at the same time.
Get pre-approved before you design
The single most common expensive mistake we see: designing the house first, falling in love with it, then discovering the financing does not reach. Talk to a lender before drawings begin. Find out what you can borrow, what the down payment looks like, and how they treat land you already own. Then we design to that number rather than away from it.
Use a local lender
Central Iowa banks and credit unions do these loans constantly, know local appraisers and builders, and handle draws without drama. Out-of-state online lenders are frequently slower on construction products and less familiar with local appraisal comparables, which can stall a build at exactly the wrong moment.
We are builders, not lenders or financial advisors — this is general information about how these loans commonly work in Iowa, not financial advice. Your lender sets your terms.