Construction Loans in Tennessee: Down Payment, Draws and One-Time Close
How construction loans pay your builder, what each program needs down, and how land you own can count toward it.
Quick answer
A construction loan pays your builder in stages, called draws, as the house goes up, then becomes a regular mortgage. In Tennessee, eligible veterans can build with 0% down on a VA one-time-close loan, and other buyers can build with as little as 5% down on a conventional one-time-close loan.
Bank construction loans and raw-land loans usually ask for more, often 15% to 25% for land alone.
Program figures on this page were verified in October 2026. Construction programs are offered by a limited number of lenders, and terms vary. Program terms and eligibility are subject to VA, Fannie Mae and lender guidelines and may change.
At a glance: construction loans in Tennessee
- VA one-time close: 0% down for eligible veterans; no payments during the build
- Conventional one-time close: as little as 5% down (95% loan-to-value) on a primary home
- Raw land only: often 15%–25% down from a bank
- Land you own: its equity can count toward the down payment
- Build time: Fannie Mae allows up to 12 months per construction period, 18 months in total
- Builder: a licensed general contractor the lender approves
How does a construction loan work?
The lender doesn’t hand over the whole loan at closing. It pays the builder in draws as each phase is finished, and an inspector or appraiser confirms the work before each draw. Once the house is complete, the loan converts to (or is paid off by) a regular mortgage.
- One-time close (construction-to-permanent): one application, one approval, one set of closing costs. The loan converts to your permanent mortgage when the house is done.
- Two-time close: a short-term construction loan, then a separate mortgage at the end, which means qualifying and paying closing costs again.
The lender approves your plans, specifications, budget and builder contract before closing, and bases the loan on the lower of total cost or the “as completed” appraised value.
How much down payment do you need for a construction loan?
| Loan | Minimum down | Payments during the build | Who it fits |
|---|---|---|---|
| VA one-time close | 0% | None; interest on each draw is added to the loan | Eligible veterans and service members; funding fee usually financed, waived for many disabled veterans |
| Conventional one-time close | 5% (95% LTV), primary home | Interest only on the amount drawn | Buyers with conventional credit; Fannie Mae’s single-closing program |
| Bank portfolio construction loan | Set by each bank, often 20% | Usually interest only | Custom terms; may need a second closing for the permanent loan |
| Raw land only, no build yet | Often 15%–25% | Regular land-loan payments | Buyers who want the land now and will build later |
Sources: Fannie Mae Selling Guide B5-3.1-02 and Eligibility Matrix; VA, funding fee and closing costs. Not every lender offers every construction program, and lenders can set stricter credit, reserve and builder requirements. Program terms and eligibility are subject to VA, Fannie Mae and lender guidelines and may change.
How does a VA construction loan work?
A VA one-time-close loan can cover the land and the house in one loan with no down payment, as long as the price fits the appraisal. The veteran makes no payments while the home is built; the interest on each draw is added to the loan, and full payments start after completion. The VA funding fee applies unless you are exempt: on first use with 0% down it is 2.15% of the loan, and veterans receiving VA disability compensation don’t pay it. Few lenders offer VA construction at all. Program terms are subject to VA and lender guidelines and may change.
Can land you already own count as your down payment?
Often, yes. If you own the lot, many construction programs count its value as equity in the project.
- On Fannie Mae’s single-closing program, a borrower who already owns the lot closes as a limited cash-out refinance, and loan-to-value uses the “as completed” value of the land and house.
- If you still owe money on the land, the construction loan usually pays off that balance, and only your equity counts.
- Recently purchased land may be valued at what you paid rather than at a higher appraisal. Rules differ by program and lender.
How long can construction take?
Each program sets limits. Fannie Mae’s single-closing program allows no single construction period over 12 months and no more than 18 months in total. Ask your builder for a realistic schedule with room for weather, inspections and draw approvals, because delays past the program limit can force a re-approval.
What does the lender need from your builder?
- A licensed general contractor the lender approves; in Tennessee that usually means a contractor licensed by the Board for Licensing Contractors for projects of $25,000 or more.
- A signed fixed-price construction contract, plans and specifications, and an itemized budget.
- Builder’s risk insurance and a draw schedule that matches the build phases.
- Owner-builder loans exist but are rare, and usually need a larger down payment and building experience.
What does a $350,000 build in Robertson County look like?
An illustrative project: a $70,000 lot and a $280,000 contract to build, for a total cost of $350,000.
| Loan | Down payment | Base loan amount |
|---|---|---|
| VA one-time close (0%) | $0 | $350,000, plus the funding fee if it applies |
| Conventional one-time close (5%) | $17,500 | $332,500 |
| Bank loan at 20% down | $70,000 | $280,000 |
| Lot already owned free and clear | $70,000 of land equity, about 20% of total cost | Up to $280,000, often with no extra cash for the down payment |
Illustrative example only. Actual interest rates and APRs vary based on loan program, borrower qualifications, property, market conditions and other factors. Excludes closing costs and builder deposits. Loans are generally based on the lower of total cost or the “as completed” appraised value. Subject to VA, Fannie Mae and lender guidelines.
To try your own numbers, including the property tax for a specific Tennessee address, use the Tennessee mortgage calculator.
What are the catches with construction loans?
- Few lenders offer VA construction, and every construction file takes more paperwork than a purchase.
- You may carry rent or your current mortgage during the build, and lenders count that payment when they qualify you.
- Cost overruns and change orders are usually on you; keep cash for a contingency even if the budget includes one.
- Closing costs include Tennessee’s transfer tax on the land purchase and mortgage tax on the loan.
- Plans, permits, a survey and soil or perc tests for septic may be needed before closing.
Construction loan FAQ
Do you need 20% down to build a house?
Not always. 20% is common on bank portfolio construction loans, but VA one-time-close loans can require 0% for eligible veterans, and conventional one-time-close loans start at 5% on a primary home. Program terms are subject to agency and lender guidelines and may change.
Do you make payments while the house is being built?
On most construction loans, yes: interest-only payments on the amount drawn so far. On a VA one-time-close loan, the veteran typically makes no payments during construction, and the interest is added to the loan instead. Full payments start after completion.
How much down do you need for a land loan?
Buying raw land with no immediate plan to build usually takes 15% to 25% or more, set by the bank. If you plan to build right away, a construction-to-permanent loan that includes the lot can need far less down. Terms are subject to lender guidelines and may change.
Can you finance a barndominium with a construction loan?
Often, yes, including with a VA one-time-close loan, as long as the home meets the program’s property rules and the appraiser can find comparable sales in the area. Rural acreage can work on the same basis. Program terms are subject to VA and lender guidelines and may change.
Can you be your own builder?
Rarely. Most government and conventional construction programs require a licensed general contractor that the lender approves. Owner-builder loans exist but usually require a larger down payment and documented building experience, and fewer lenders offer them.
Where these figures come from
| Figure | Source | As of |
|---|---|---|
| Conventional single-close rules, 95% LTV, construction periods, lot equity | Fannie Mae Selling Guide B5-3.1-02 and Eligibility Matrix | Retrieved Oct 26, 2026 |
| VA funding fee and exemptions | VA, Funding fee and closing costs | Retrieved Oct 26, 2026 |
| Tennessee contractor licensing | TN Board for Licensing Contractors | Retrieved Oct 27, 2026 |
| Land-loan down payments; VA construction payments; barndominiums | Christopher Armantrout on WSGI One Street Over | Mar 26, 2026 |
Related guides
- How much down payment do you need to build a new house?
- VA loans and conventional loans.
- Down payment assistance, including THDA’s $25,000 new-construction option.
- Robertson County mortgage guide.
- Buying or refinancing around Music City? See my Nashville, TN mortgage broker page.
- About Christopher Armantrout, the licensed originator who wrote this page.
Call me at (615) 671-9178. Before you sign a lot contract or a build contract, I’ll show you what each construction option would need from you in cash.
If it’s after hours, grab a time on my calendar, or start an application and I’ll review it and reach out with a plan.
Valor Mortgage, LLC · Christopher Armantrout, Mortgage Loan Originator, NMLS #1210804 · Valor Mortgage, LLC is powered by Encore Lending Group, LLC, NMLS #1249911 · Licensed in Tennessee · Equal Housing Opportunity
724 S Main St, Springfield, TN 37172 · (615) 671-9178 · christopher@valor.mortgage · NMLS Consumer Access
The dollar figures on this page are illustrative examples for general information only and are not an offer, a rate quote, or a commitment to lend. Actual interest rates and APRs vary based on loan program, borrower qualifications, property, market conditions and other factors. Program fees, limits and terms are set by the agencies named above and change without notice; all loans are subject to credit approval, income verification and property appraisal. Not all applicants will qualify.