New Construction Financing in Tennessee

One-time close vs. two-time close construction loans

There are two primary structures for new construction financing:

One-time close (construction-to-permanent): A single loan that covers both the construction phase and the permanent mortgage. You close once, lock your rate at the start, and the loan automatically converts to a permanent mortgage when construction is complete. This eliminates the risk of rate changes during construction and avoids a second closing.

Two-time close: A separate construction loan covers the build phase, and you obtain a new permanent mortgage at completion. This requires two closings and two sets of closing costs. The advantage is flexibility — you can shop for the best permanent mortgage rate when construction is complete, rather than locking in at the start.

Builder financing incentives: what to know

Production builders (large national and regional builders) often offer financing incentives — rate buydowns, closing cost credits, or upgrades — if you use their preferred lender. These incentives can be valuable, but they come with trade-offs:

• The builder's preferred lender may not offer the most competitive rate outside of the incentive
• Incentives are often tied to specific loan programs or terms
• The incentive may be structured as a rate buydown that benefits the builder's sales metrics more than the buyer's long-term cost

Getting a competing quote from an independent lender before accepting builder financing allows you to evaluate whether the incentive is genuinely beneficial. Morgan Hardy can provide a comparison.

Appraisal for new construction

New construction appraisals are based on plans and specifications rather than a completed property. The appraiser reviews the builder's plans, comparable sales of similar new construction, and the contract price. The appraisal must support the purchase price for the loan to proceed. In fast-moving markets, appraisal gaps can occur if comparable sales haven't kept pace with current pricing.

Timeline considerations

New construction timelines in Tennessee have ranged from 6 to 18+ months depending on the builder, supply chain conditions, and the complexity of the home. Rate locks for new construction are typically longer than standard purchase locks (180–360 days for some programs) and may carry a premium. Understanding the rate lock structure and extension costs is important before committing to a construction loan.