Construction loans for a custom home in Northern Virginia and Montgomery County

How a construction loan works

A normal mortgage pays for a house that already exists. A construction loan pays for one that doesn’t yet, so the bank releases the money in stages, called draws. Each time the builder finishes a stage (foundation, framing, drywall and so on), the lender sends an inspector, checks the work, and pays the builder for it. While the house is going up you usually pay interest only, and only on the money drawn so far.

When the house is finished and passes final inspection, the loan becomes a regular mortgage, or you replace it with one.

One-time close or two-time close

What lenders will ask for

• An approved builder. A licensed builder with insurance, a track record and a signed contract. In Virginia a new house needs a Class A contractor; Montgomery County has its own new home builder license.
• Plans, specs and a budget. The lender’s appraiser values the house as it will be when finished, so the budget needs to be detailed. Allowances that are too low are a common reason a loan comes up short.
• A down payment or lot equity. Commonly 10 to 20 percent, more on big jumbo loans. A lot you already own often counts.
• Cash for overruns. Lenders like to see reserves or a contingency line in the budget. Plan for 5 to 10 percent.
• Permits before the first draw. Most lenders won’t release construction money until the building permit is issued.

Jumbo loans are normal here

For 2026 the conforming loan limit for a one-unit home in the DC area’s high-cost counties is $1,249,125. Most custom builds and teardown rebuilds in McLean, Arlington, Bethesda or Potomac go over that, so the finished loan is a jumbo with its own rules on down payment, credit score and reserves. Ask each lender for its jumbo construction terms specifically.

Questions to ask a lender

1. Do you offer one-time close, two-time close, or both? Can I lock the rate before we break ground, and what does that cost?
2. How long is the construction period, and what does an extension cost if the build runs late?
3. How many draws are there, who inspects, and how fast is the builder paid after an inspection?
4. How do you value a lot I already own, or a teardown I’m buying?
5. Do you need to approve my builder? How long does that take?
6. What happens to the loan if costs go over budget?
7. Do you require lien waivers from the builder and subs at each draw? (Good lenders do. It protects you.)

Your builder is a good source too. Builders who do several homes a year usually know which loan officers understand draws and pay on time.