A conforming loan is a mortgage for less than $417,000, while a loan larger than that is a non-conforming (sometimes called “jumbo”) loan. There are differences in the qualification guidelines on these loans. There are a bazillion mortgage companies that can approve you for a conforming loan: finding a lender for a jumbo loan can sometimes be more challenging because the rules are stricter.
One-Step vs Two-Step Construction Loans
There are two different ways to get financed for building a home: A) one-step loans (sometimes called “simple close” loans) and B) two-step loans. Both loans are great products, but it depends on the type of home you’re building. Here are the differences:
One Step Loans: with a one-step construction loan, you are selecting the same lender for both the construction loan and the mortgage, and you fill out all the paperwork for both loans at the same time and when you close on one a one-step loan, you are in effect closing on the construction loan and the permanent loan. I used to do lots of these loans years ago and found that they can be the greatest loan in the world IF you’re absolutely certain on what your home will cost when it’s done, and the exact amount of time it will take to build. For example, a tract home builder that builds 200 homes a year can easily work with a one-step loan when he’s building a floor plan he’s used fifty times in the past. However, when building a custom home 
where you may not be absolutely sure what the exact price will be, or how long the building process will take, this choice may not be a very good fit.
If you have a one-step loan and later decide “Oh wait, I want to add another bedroom to the third floor,” you’re going to have to pay cash for it right then and there because there’s no wiggle room to increase the loan. Also, as I mentioned, the time line is very important on a one-step loan: if you expect the home to take only 8 months to build (for example), and then construction is delayed for some reason to 9 or 10 months, you’ve got major issues.
Two Step Loans: with a two-step loan, you’re splitting up the construction loan and the mortgage, where you finish building your house and then close on the mortgage when it’s built. This is a much better fit for people building a custom home. You have more flexibility with the final cost of the home and the time line for building. I tell people all the time to expect that changes are going to happen: you’re going to be building your house and you’ll realize halfway through that you want another feature or want to change something. You need the flexibility to be able to make those decisions as they happen.
With a two-step loan, you can make changes (within reason) to the scope of the home and add change orders and you’ll still be able to close on the mortgage. Also, since the clock is not running like on the one-step close, you can take a bit longer to finish building the house. I always give people plenty of time to get their homes built. Delays occur, whether it’s due to bad weather or other unforeseen circumstances. With a two-step, will have the flexibility of extending the construction loan.
Qualification and Down Payments
We look at the same basic criteria when approving people for a construction loan, with a few differences. Unlike the VA loans or some FHA loans where you might be able to get 100% financing and even have nothing down, the maximum LTV (loan-to-value) ratio we generally work with is about 80%. Meaning, if your house is going to have a total price of $650,000, you’re going to need to bring $130,000 cash to the table, or at least have that much in equity somewhere. If you happen to have owned your lot for an extended period of time, we can consider the appraised value of the lot as a contribution toward your equity requirement.