Construction-to-Perm Loans: How to Finance Your Spec Home Build in 2026

You have found the lot. You have a builder under contract. You know what the neighborhood comps look like and you have run the numbers. The problem is the bank wants 20 percent down, six months of reserves, two years of builder history, and a completed appraisal for a house that does not exist yet.

Sound familiar? If you are a spec home builder or real estate investor looking to build from the ground up, conventional bank financing is almost never the right tool. What you need is a construction-to-perm loan — and understanding how they actually work can be the difference between getting your project off the ground and watching a competitor scoop the lot while you are stuck in underwriting.

At Slate Financial, we work with investors and builders across Florida, Texas, Georgia, and the Carolinas to structure financing for ground-up construction projects. Apply in two minutes at slatefinancial.io/apply and let us match you with the right lender for your build.

What Is a Construction-to-Perm Loan?

A construction-to-perm loan (also called a one-time close or OTC construction loan) is a financing product that covers two phases of a project under a single loan origination:

• Phase 1 (Construction period): The lender advances draws against the loan balance as construction milestones are hit. You typically pay interest-only on drawn amounts during this phase.
• Phase 2 (Permanent period): Once the certificate of occupancy is issued, the loan automatically converts to a standard mortgage — either a 30-year fixed, a DSCR rental loan, or a bridge loan depending on your exit strategy.

The major advantage over a standalone construction loan is that you only close once. No double closing costs, no refinance risk, and no scrambling for takeout financing when the project wraps.

How Draw Schedules Work on a Spec Build

This is where most first-time builders get blindsided. Construction lenders do not hand you the full loan amount at closing. They fund in tranches called draws, and each draw is tied to verifiable completion milestones.

A typical draw schedule for a ground-up spec build looks like this:

• Draw 1 (Foundation complete): 10-15% of construction budget released after foundation inspection passes.
• Draw 2 (Framing / rough-in): 20-25% released after framing, rough plumbing, rough electrical, and HVAC rough-in are complete and inspected.
• Draw 3 (Drywall / insulation): 15-20% released after drywall hang and insulation are verified.
• Draw 4 (Interior finishes): 25-30% released after flooring, cabinets, fixtures, and trim work are substantially complete.
• Draw 5 (Certificate of occupancy): Final 10-15% holdback released after CO is issued and final inspection passes.

Each draw requires an inspection by the lender’s inspector. Plan for 3-5 business days per draw inspection. Smart builders factor this into their contractor payment schedule upfront — trying to retrofit it after GC contracts are signed creates cash flow problems on the job site.

What Lenders Actually Look For

Construction-to-perm lenders evaluate risk differently than conventional mortgage lenders. Here is what moves the needle:

ARV (After-Repair / After-Completion Value)

Private and hard money construction lenders will typically fund up to 65-75% of the completed ARV. If your spec home will appraise at $500,000 finished, a lender funding at 70% LTV will extend $350,000 — covering both lot acquisition and construction costs in many markets. This means the deal math has to work at ARV, not just at cost.

Builder Experience and Licensed Contractor

Most lenders require a licensed general contractor with documented experience in comparable projects. First-time spec builders can still qualify, but expect a higher down payment requirement and potentially a smaller initial draw. Having a strong GC partner on your first project is a legitimate underwriting offset.

Project Budget and Plans

You will need a line-item construction budget, architectural plans (at minimum a site plan and floor plan), permits in hand or in process, and a realistic project timeline. Lenders want to see that your budget has a 10-15% contingency baked in. Projects that come in without contingency reserves are a red flag — it signals the borrower has not built before.

Borrower Liquidity

Even with private financing, expect to show that you can fund cost overruns and carrying costs. A 6-month interest reserve is common. If you are operating through an LLC (which you should be), lenders will look at the LLC’s financials and the personal guarantor’s liquidity together.

Spec Home vs. Custom Home: Does It Matter to the Lender?

Yes. Spec homes (built to sell on the open market) and custom homes (built for an identified buyer under contract) carry different risk profiles. A custom build with a purchase contract in place is lower risk — the lender knows there is a buyer. A spec build carries more exit risk, which is why some lenders price them slightly higher or require a stronger liquidity position.

That said, the gap has narrowed considerably in the last two years. With inventory still constrained in most Sun Belt markets, lenders have become more comfortable with spec construction, particularly at price points under $600K where buyer demand remains strong.

Exit Strategies After Construction Completes

The “perm” side of a construction-to-perm loan can be structured several ways depending on your intent:

• Sell on completion: You can list the property while the permanent loan phase begins. Use the sale proceeds to pay off the construction-to-perm balance. Net profit is realized at closing.
• Refinance into a DSCR loan: If you intend to hold the property as a rental, the perm phase can be structured as a DSCR loan (no income documentation, qualifies on projected rent). This is the buy-build-rent strategy and it works well for SFR rentals and small multifamily.
• Convert to a bridge loan: If the market softens temporarily and you want to wait for pricing to improve, a short-term bridge lets you carry the stabilized property for 12-24 months while you wait for the right sale.

Having clarity on your exit strategy before you pull financing is not just smart — it determines which loan product is right for you at origination. Tell us your exit plan at slatefinancial.io/apply and we will structure financing around it.

Common Mistakes That Kill Spec Build Deals

Underestimating the Timeline

New construction takes longer than you think. Plan for permitting delays (4-12 weeks in many counties), material lead times, and weather. A project budgeted for 8 months often takes 11-12. Your interest carry and holding costs need to reflect the realistic timeline, not the optimistic one.

Choosing the Wrong GC

The lender’s inspector will flag incomplete or substandard work and hold the draw until it is corrected. A GC who cannot pass inspections will stall your draws, eat your contingency, and potentially blow your budget. Vet your contractor as carefully as you vet the deal.

Not Modeling ARV Conservatively

The market can shift during a 10-month build. If your ARV assumption requires the market to hold or improve, you are adding speculative risk on top of construction risk. Model ARV at today’s comps, not projected appreciation. Funding subject to lender approval and market conditions at time of completion.

Starting Without Permits in Hand

Some lenders will not advance the first draw until permits are pulled. Do not assume permits will be issued on a specific timeline — apply early and build the wait into your project schedule.

How Slate Financial Structures Construction-to-Perm Deals

We work with a network of private lenders and portfolio lenders who specialize in ground-up construction for real estate investors. Unlike banks, these lenders are deal-specific — they underwrite the project and the borrower together, and they move faster.

Here is what the process looks like when you come to us:

1. Quick application: Tell us your lot address, estimated construction budget, target ARV, and exit strategy. Takes about two minutes.
2. Term sheet in 24-48 hours: We match you with lenders who fit your deal profile and bring you terms to compare.
3. Closing in 7-14 days: Private construction lenders close significantly faster than banks. Most deals fund within two weeks of a complete file.
4. Draw management: We help you understand the draw schedule so there are no surprises on the job site.

Funding is subject to lender approval, credit review, and project underwriting. We do not make guarantees about qualification or outcomes — every deal is evaluated on its own merits.

Ready to Build?

Spec home construction is one of the highest-upside plays in residential real estate when the deal is structured right. The financing does not have to be the hard part.

Ready to fund your next deal? Apply in 2 minutes at slatefinancial.io/apply and let us build the financing around your project — not the other way around.

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