Construction-to-Permanent Loans in Tennessee (2026): One-Time-Close, Draws & Rate Locks for Building on Your Lot

A construction-to-permanent loan in Tennessee finances both the building of your home and your long-term mortgage in a single product, and the most common version — the one-time-close (OTC), or single-close, loan — does it with just one closing. You close once before any work starts, the loan funds the build through a series of inspected draws, you make interest-only payments only on the money drawn so far, and the same loan automatically converts to a permanent mortgage when the home is finished. That means one set of closing costs, no re-qualifying at the end, and a permanent interest rate that is locked up front — important protection on a custom build that can run 9 to 18 months. For context on today's market, Freddie Mac's Primary Mortgage Market Survey put the 30-year fixed at 6.49% as of June 25, 2026 (freddiemac.com).

This is the standard path for buyers building a custom home or building on land they already own in places like Cheatham, Maury, Wilson, Robertson, and the rural edges of Davidson and Williamson counties — areas where there often isn't a builder-lender to hand you financing the way a production community in Spring Hill, Mount Juliet, or Hendersonville would. Our team built this guide for the buyer who isn't shopping a model home: you have a lot, or you're about to buy one, and you want a home that's yours from the foundation. Below: how the loan functions, the single-close vs. two-time-close decision, how draws and rate locks work over a long build, and which government programs (VA, USDA, FHA) let you do it with little or no money down. This is a companion to our broader “Financing New Construction” guide, which focuses on builder lenders inside production communities.

One-Time-Close vs. Two-Time-Close: The Decision That Sets Your Whole Build

There are two structures for construction-to-permanent financing, and choosing between them is the first real decision a custom buyer makes.

One-Time-Close (Single-Close)

You close one time, before construction starts. That single closing covers the lot (or pays off lot you already own), the construction phase, and the permanent mortgage. When the home is complete, the loan simply converts — often called a “modification” — to its permanent terms. You pay one set of closing costs and you lock your permanent rate up front.

• •One closing, one set of closing costs.
• •Your permanent interest rate is set before the build begins — protection if rates rise during construction (Wilson Bank & Trust describes its OTC product as letting you “keep the same loan after moving into your new home,” wilsonbank.com, accessed June 2026).
• •No re-qualifying at the end — you don't have to prove income or credit a second time after months of construction.
• •Best when you want budget certainty and a long build timeline.

Two-Time-Close (Two Separate Loans)

You take out a short-term construction loan first, then close a second time on a separate permanent mortgage once the home is done. You pay closing costs twice and you re-qualify for the permanent loan at the end.

• •Two closings, two sets of closing costs.
• •You shop the permanent loan at the end — useful only if you expect rates to be lower when you finish, which no one can guarantee.
• •You must re-qualify at conversion; a job change, new debt, or credit dip during the build can complicate the permanent loan.
• •Sometimes the only option for very large or unusual jumbo projects.

How the Construction Phase Actually Works: Draws and Inspections

Unlike a normal purchase where the seller is paid in full at closing, a construction loan releases money in stages called draws as your builder completes work. The lender doesn't hand over the full loan up front — it pays out as the house is built and verified.

Tennessee Valley Federal Credit Union, for example, releases construction funds in up to 12 draws for a standard project (or up to 18 for larger projects) over a typical construction window, and notes that inspections are conducted before funds are released at each stage (tvfcu.com, accessed June 2026). That inspection-before-draw rhythm is standard across Tennessee lenders — First Horizon Bank, for instance, also states that inspections are conducted at each stage before funds are released (firsthorizon.com, accessed June 2026). An inspector confirms a stage is done before the next chunk of money is released to the builder.

A typical draw schedule on a Middle Tennessee custom build tends to follow milestones like these:

1. Lot acquisition / site prep — land payoff, clearing, grading, septic or sewer tap, well or water connection.
2. Foundation — footings, slab or basement, and foundation walls.
3. Framing and roof dry-in — the home is “under roof” and weather-tight.
4. Mechanicals — rough plumbing, electrical, and HVAC.
5. Interior — insulation, drywall, cabinetry, trim, and flooring.
6. Final — fixtures, punch list, certificate of occupancy, and final inspection.

Interest-Only While You Build

During construction you make interest-only payments — and you only pay interest on the money that has actually been drawn, not the full loan amount. Tennessee Valley FCU requires interest-only payments during the building phase, with principal-and-interest beginning once the loan converts to a permanent mortgage (tvfcu.com, accessed June 2026). Wilson Bank & Trust similarly offers the option to make interest-only payments during the construction period, then converts the loan into a traditional mortgage once the home is complete (wilsonbank.com, accessed June 2026).

Practically, your payment is small at the start — only the foundation has been drawn — and grows month by month as framing, mechanicals, and finishes are funded. Many buyers building on a lot still have a current housing payment during this window, so budgeting for a rising interest-only payment on top of rent or an existing mortgage is part of qualifying. Once the home is complete and the loan converts, you begin normal principal-and-interest payments.

Rate Locks and Float-Downs on a Long Build

The single biggest advantage of a one-time-close loan is what it does to interest-rate risk. With a single close, you lock your permanent rate before the first shovel hits the ground. Tennessee Valley FCU notes that you lock in a rate for both the construction and permanent phases of your project at closing (tvfcu.com, accessed June 2026). If market rates climb during your build, you're protected; your rate was set at closing.

The trade-off is the flip side: if rates fall during your build, a basic OTC lock could leave you above market by the time you move in. That's where a few details are worth asking every lender about before you commit:

• •Lock length — a build can run 9 to 18 months, so confirm the lock covers your full construction window, not a standard 60- or 90-day purchase lock. (Pinnacle Financial Partners, for example, notes extended-lock options at 90 days, 6 months, or 12 months, pnfp.com, accessed June 2026.)
• •Extended-lock cost — longer locks sometimes carry a fee or a slightly higher rate; get it in writing.
• •Float-down option — some single-close programs offer a one-time float-down that lets you capture a lower rate if the market drops before completion. Availability and cost vary by lender, so ask specifically.
• •Conversion / modification terms — confirm whether the OTC converts automatically at completion or requires a modification step, and whether any fee applies.

Because lock policies differ so much from one Tennessee lender to the next, this is exactly the kind of detail our team helps buyers compare side by side — the headline rate matters far less than how the lock behaves over a year-long build.

Down Payments and Government-Backed OTC Programs in Tennessee

Construction-to-permanent loans come in conventional and government-backed flavors, and the down payment varies widely.

Conventional Single-Close

Conventional OTC loans generally follow Fannie Mae and Freddie Mac construction-to-permanent guidelines, which allow the construction loan to be converted into a standard conforming mortgage. Down payments vary by lender and borrower; Tennessee Valley FCU advertises as little as 5% down — up to 95% financing — for qualified borrowers on its construction-to-permanent product (tvfcu.com, accessed June 2026). Conventional programs also typically allow you to credit equity in land you already own toward your down payment, which is common for buyers who bought rural acreage in Cheatham or Maury County a few years before building.

VA One-Time-Close (Veterans and Active Duty)

A VA one-time-close construction loan lets eligible veterans, active-duty service members, and qualifying surviving spouses finance the land (or land payoff), the construction, and the permanent VA mortgage in a single loan and one closing — and qualified borrowers can finance up to 100% with no down payment required, with Tennessee among the states served (per onetimeclose.com and fha.com OTC guidance, accessed June 2026). For Middle Tennessee's large veteran population — Clarksville and the Fort Campbell corridor especially — this is one of the most powerful build-on-your-lot tools available.

USDA Single-Close (Rural)

USDA's single-close construction-to-permanent program is built for eligible rural properties and offers 0% down for qualified borrowers — a natural fit for much of Cheatham, Maury, and the rural pockets of Wilson and Robertson counties that fall inside USDA-eligible boundaries. Two caveats matter: the program carries USDA income limits and debt-ratio requirements that not every buyer meets, and many lenders don't offer it, so the list of participating lenders is short (USDA Rural Development maintains an official participating-lender list, rd.usda.gov, accessed June 2026). If you're building rural, it's worth checking eligibility early because the lender pool is limited.

FHA One-Time-Close

FHA also offers a one-time-close construction-to-permanent option, generally with FHA's 3.5% minimum down payment for qualified borrowers and the same single-closing structure (fha.com, accessed June 2026). It can be a fit for buyers who don't qualify conventionally but still want a single-close build.

Tennessee Lenders That Offer Construction-to-Permanent Loans

A mix of national banks, regional banks, and local credit unions write these loans in Middle Tennessee. Our team works alongside whichever lender fits your project; a few that publicly market construction or single-close construction-to-permanent financing in the region include:

• •First Horizon Bank — offers single-close construction-to-permanent loans that combine construction and mortgage financing into one loan, with funds disbursed in inspected draws (firsthorizon.com, accessed June 2026).
• •Pinnacle Financial Partners — publishes guidance on financing a new-construction home in Middle Tennessee, including lot loans and extended rate-lock options (pnfp.com, accessed June 2026).
• •Wilson Bank & Trust — a Lebanon-based community bank serving Middle Tennessee, offering a construction loan with interest-only payments during construction and a one-time-close mortgage with local decision-making; title insurance is not required on loans under $500,000 (wilsonbank.com, accessed June 2026).
• •Tennessee Valley Federal Credit Union — single-close construction-to-permanent loan with up to 12 (or 18 for larger projects) inspected draws and as little as 5% down for qualified borrowers (tvfcu.com, accessed June 2026).
• •Regions Bank and other regional lenders and local credit unions also write construction loans across the area.

Terms, draw counts, lock lengths, and down payments differ at every one of these — confirm current specifics directly with the lender, since published terms change.

Why Independent Representation Still Matters When You're Building

It's a common assumption that you don't need an agent when you're building on your own lot — there's no listing agent across the table, just you, a builder, and a lender. In reality, that's exactly when a knowledgeable buyer's advocate earns their keep. A custom build involves a lot purchase, a builder's contract, a construction loan, draw approvals, and a long timeline, and most of those documents are written to protect the builder and the lender — not you.

• •Lot due diligence — verifying septic feasibility (perc tests), well or utility access, flood designation, easements, soil, and zoning before you commit to land that may not be buildable.
• •Builder contract review — understanding allowances, change-order language, draw milestones, and completion timelines.
• •Comparing financing — helping you weigh single-close vs. two-close offers and lock terms across multiple Tennessee lenders.
• •Land valuation and resale — a clear-eyed read on what you're paying for the lot and how the finished home is likely to sit in the local market.

We position ourselves as a partner to your builder and your lender, not an obstacle — the goal is a clean, well-documented build, not friction. Buyer representation is often little or no cost, because the seller usually covers it (negotiated, not automatic after the 2024 NAR changes). The value is in catching the expensive problems before they're poured in concrete.

Frequently Asked Questions

Can I use a construction-to-permanent loan on land I already own?

Yes. With most single-close programs, land you already own can be folded into the loan — the loan pays off any lot loan, and your existing equity in the land can often count toward your down payment. Confirm with your specific lender, since how land equity is credited varies.

What's the difference between one-time-close and two-time-close?

One-time-close means a single closing covers the lot, the build, and the permanent mortgage, with one set of closing costs and your permanent rate locked up front. Two-time-close means a separate short-term construction loan and then a second closing on the permanent mortgage — two sets of closing costs and re-qualifying at the end.

What do I actually pay during construction?

Interest-only payments on the amount drawn so far — not the full loan. Your payment starts small and grows as draws fund foundation, framing, mechanicals, and finishes. When the home is complete and the loan converts, you begin full principal-and-interest payments.

Are there zero-down construction loans in Tennessee?

Yes, for eligible borrowers and properties. VA one-time-close loans can finance up to 100% for qualified veterans and service members, and USDA single-close offers 0% down on eligible rural properties (subject to income and debt-ratio limits and a limited lender pool). FHA OTC typically requires 3.5% down, and conventional OTC commonly starts around 5%.