Construction financing is fundamentally different from buying an existing home, and understanding the mechanics prevents surprises. Here's how it works in Charlotte.
Construction-to-permanent (C2P) loans are the most common vehicle. These are single-close loans where you lock in terms upfront, draw funds during construction, and automatically convert to a permanent mortgage at completion. Charlotte lenders offering competitive C2P products include First Horizon (strong local presence), Pinnacle Financial (custom home specialty), and several local credit unions. Typical terms: 20–25% down payment based on appraised value of the completed home, interest-only payments during construction (you only pay interest on the amount drawn, not the full loan), and conversion to a 30-year fixed mortgage.
Two-close construction loans are an alternative: a short-term construction loan during building, then you refinance into a permanent mortgage at completion. This costs more in closing fees (you close twice) but can offer more flexibility—you can shop for permanent financing at completion when rates may be different.
Down payment math on a $1.5M custom home project: 20% = $300K down, with the remaining $1.2M funded through draws. During a 14-month build, your monthly interest-only payments start small (maybe $2,000–$3,000/month after the first draw) and increase as more funds are drawn, reaching full interest payments toward completion.
Key differences from traditional mortgages: The appraiser must value the completed home based on plans and comparable properties—not just land value. Your builder's reputation matters to the lender; established builders with strong track records make loans easier to obtain. Draw schedules (typically 5–7 draws tied to construction milestones: foundation, framing, dry-in, mechanical rough-in, drywall, finishes, completion) require lender inspections before funds are released.
If you already own a home, timing the sale is critical. Options include: selling first and renting during construction, taking a bridge loan, or negotiating a sale-leaseback with your buyer. Your builder's estimated timeline drives this decision—Peters Custom Homes and other experienced Charlotte builders provide realistic schedules that help you plan the financial bridge.
Lot financing: If you're purchasing land separately before starting construction, land loans typically require 25–30% down with 5–10 year terms at slightly higher rates than mortgage rates. Some C2P loans can roll in the lot purchase, simplifying the process.