Thinking about building or undertaking a major renovation in Chevy Chase, but unsure how to finance it smoothly from start to finish? You are not alone. Custom projects add design freedom, yet they also add moving parts with lenders, inspections, and permitting. In this guide, you will learn how construction‑to‑permanent loans work, what lenders look for on high‑end builds, and how local Montgomery County timelines affect your plan. Let’s dive in.
What a construction‑to‑permanent loan is
A construction‑to‑permanent loan, often called a one‑time‑close loan, combines your construction financing and your long‑term mortgage into one package. You typically close once. During construction, the bank releases funds in stages called draws. After the home passes required milestones and documentation checks, the loan converts to your permanent mortgage without a second closing.
This structure differs from a two‑close approach where you close on a short‑term construction loan first, then refinance into a separate permanent mortgage later. A one‑time‑close can reduce duplicate closing costs and paperwork. It also gives you clearer expectations from the start.
You usually make interest‑only payments during construction based on the amount drawn, not the full loan amount. Once the home is complete and the loan converts, your payments switch to regular principal and interest per your mortgage terms.
How lenders underwrite high‑end Chevy Chase builds
Borrower strength and reserves
For premium projects, lenders expect strong credit and documented liquidity. Mid‑700 credit scores tend to qualify for better pricing. They also review your income, assets, and debt‑to‑income ratio. Expect to show adequate reserves to handle contingencies and cost overruns.
Down payment, LTV and loan‑to‑cost
Many lenders size a construction‑to‑permanent loan as a percentage of the completed appraised value. Common maximums for conventional products are around 75 to 80 percent of the finished value, subject to your profile and the lender’s rules. Some lenders also look at loan‑to‑cost limits. In both cases, you are often expected to bring land equity and contingency funding.
For unique or ultra‑custom properties where comparable sales are limited, lenders may require more equity. This protects against appraisal uncertainty.
Builder qualifications and contract type
Lenders vet the builder closely on custom jobs. Expect to provide:
- A signed fixed‑price contract or a guaranteed maximum price contract.
- Proof of licensing, insurance, and a portfolio of similar projects.
- References and evidence of the builder’s financial stability.
Change orders are a big focus on luxury builds. Lenders may require clear approval processes and contingency funding to manage changes without jeopardizing the budget.
Contingency planning for overruns
A contingency reserve of about 5 to 10 percent of construction cost is common. Lenders want to see how overruns would be covered, whether by cash, a line of credit, or builder contributions.
Insurance, title and lien protections
Builders’ risk insurance must be in place before the first draw. You will also provide title insurance and demonstrate clear title to the lot. With each draw, lenders typically collect mechanic’s lien waivers and contractor invoices.
Appraisal for luxury homes
Appraising a one‑of‑a‑kind Chevy Chase home can be challenging. The appraiser will value the property “as completed” based on plans and specifications. When direct comparable sales are limited, the analysis may lean more on the cost approach in addition to sales comparisons. Lenders often respond by lowering the loan‑to‑value or requiring more equity to manage risk.
Draws, inspections and lien waivers
Typical draw schedule
Draws are tied to milestones rather than dates. A standard schedule might include foundations, framing, mechanical rough‑ins, exterior finishes, interior finishes, and a final completion draw. High‑end builds can have more draws for custom millwork, specialty systems, and high‑finish phases.
Inspections and approvals
Before releasing each draw, lenders require an inspection to verify percentage of completion. These lender inspections are separate from Montgomery County building inspections. You need both to stay on track.
Retainage and final releases
Lenders often hold back 5 to 10 percent of the final draw as retainage. This is released after the certificate of occupancy is issued and all final lien waivers and documents are in place.
Fees and administration
Expect modest inspection fees for each draw and possible draw administration fees. Ask your lender to outline these costs at application.
Rates, interest and conversion to permanent
Interest during construction
During construction, you generally pay interest only on the funds drawn. The construction‑phase rate may be variable or tied to your final mortgage rate depending on the lender and product.
Locking your permanent rate
You usually have two choices for rate locks:
- Lock at closing for the permanent mortgage. This provides certainty and may involve a fee or premium for a longer lock period.
- Lock at conversion. This avoids paying for a long lock but leaves you exposed to market rate changes.
Some lenders offer a float‑down option that allows one downward adjustment within set rules. If certainty matters, negotiate lock terms at commitment.
How conversion works
When construction is complete and you provide the final inspection, certificate of occupancy, invoices, and lien waivers, the lender releases retainage and converts the loan. With a true one‑time‑close product, conversion is administrative and does not require a second closing.
Local factors in Chevy Chase that affect timing
Permitting and approvals
Montgomery County’s Department of Permitting Services handles building permits, plan reviews, and inspections for Chevy Chase. Larger projects may also need approvals for stormwater management, grading, erosion and sediment control, tree or forest conservation, and right‑of‑way or driveway changes. Many Chevy Chase neighborhoods have HOA covenants or village boards that add an extra review layer.
Timelines you should plan for
Custom new homes often run 9 to 18 months from groundbreaking to completion, depending on scope and detail. Major renovations can take about 4 to 9 months. Permit review timelines vary with complexity and agency workload. Plan for several weeks to multiple months for large custom projects, and build in time for potential revisions.
Site constraints and cost impacts
Smaller or sloped lots, mature trees, and stormwater requirements can add site work and engineering costs. Historic or neighborhood design constraints may require specialty materials and longer lead times. Lenders will want those costs fully reflected in your budget and contingency.
Market and appraisal realities
Chevy Chase supports premium finished values, but highly personal upgrades do not always translate one‑for‑one into appraised value. Appraisers and lenders test whether the market supports your planned finishes. Be prepared for conservative valuations if comparable sales are limited.
What to prepare before you apply
Gather the right documents early to streamline underwriting:
- Final or near‑final plans, specifications, and a fixed‑price or GMP construction contract.
- Detailed construction budget with a 5 to 10 percent contingency plan.
- Builder’s license, proof of insurance, portfolio, and lender references.
- Lot deed and title report, survey, and recent tax assessment.
- Personal financials: recent tax returns, bank and asset statements, and a list of real estate holdings.
- A realistic permitting and construction timeline with key milestones.
Smart questions to ask your lender
- Is this a true one‑time‑close product or a separate construction loan followed by a second closing?
- When can I lock the permanent rate? Are float‑down options available, and what are the fees for early locks?
- What is the maximum loan‑to‑value on the completed appraised value, and will PMI be required?
- How are draws handled? Who performs inspections, and what are the inspection fees?
- Will you hold retainage? How much, and what is required for final release?
- How do you handle change orders and cost overruns?
- What contingency reserve do you require?
- What timing do you require between the final draw and conversion to permanent?
Risks to plan for and how to mitigate them
- Cost overruns: Use a fixed‑price or GMP contract, include a contingency reserve, and maintain clear change‑order controls.
- Builder performance: Choose a vetted builder with relevant experience, require lien waivers, and follow progress holdbacks.
- Permit delays: Build schedule buffers for county review and neighborhood approvals, and include a permit contingency in the budget.
- Appraisal shortfall: Underwrite conservatively, be prepared with more equity, and review plans and specs with the appraiser’s perspective in mind.
Why involve your builder early
Bringing your builder in during feasibility and design helps you set a realistic budget, confirm site costs, and plan your draw schedule. A disciplined process also supports lender confidence. With a choice of fixed‑price or percentage‑based management, you can select the contracting model that matches your need for cost certainty or collaborative control.
If you are exploring a custom home or significant renovation in Chevy Chase, we are here to help. Schedule a Feasibility Consultation with Chesapeake Custom Homes & Development to discuss scope, budget, timeline, and next steps.
FAQs
What is a construction‑to‑permanent loan and how is it different from two‑close financing?
- It combines construction financing and your long‑term mortgage into one loan with one closing, while a two‑close approach uses separate loans and two closings.
How much down payment do lenders typically require for a Chevy Chase custom build?
- Many conventional lenders cap loans around 75 to 80 percent of the completed appraised value, with higher equity needed for highly unique projects.
Do I make full mortgage payments during construction?
- No, payments are typically interest‑only on the amount drawn; after completion and conversion, payments switch to principal and interest.
Who inspects the project before each draw is released?
- The lender uses its own inspector or a third party to verify completion percentages, which is separate from Montgomery County’s building inspections.
How long should I expect permitting and reviews to take in Montgomery County?
- Timelines vary by scope, but large custom projects commonly take several weeks to multiple months for plan review, plus time for any revisions.
What happens if the appraisal comes in lower than expected on a luxury build?
- Lenders may lower the loan‑to‑value or ask for more equity, so you should plan for a conservative valuation and maintain a robust contingency.
