Construction Loan Rates and the Float-Down: How Pricing Works During the Build

On most one-time-close construction-to-permanent loans, your interest rate is set once at the initial closing and carries all the way through the permanent mortgage, so you lock before the first shovel hits the ground; on a two-time-close loan you re-lock at a second closing after the home is finished, which exposes you to wherever the market has moved. That single structural difference is the most important thing to understand about construction loan rates. Some agency programs also let the rate float during construction under a documented ceiling, and a few lenders offer float-down or extended-lock features. This guide walks through exactly how pricing works during a build in Colorado Springs and El Paso County, so you know what you are actually agreeing to when you sign.

None of the numbers below are quotes. Every rate figure here is general — confirm current pricing with your lender, because construction pricing moves with the market and varies by program, credit profile, and builder.

How your rate is set on a construction loan

A construction-to-permanent loan is really two loans stapled together: a short-term construction loan that funds the build in draws, and a long-term permanent mortgage that takes over once the home is complete. How and when the rate gets pinned down depends on whether you have a single closing or two separate closings.

On a single-closing (one-time-close) transaction, you close once, before construction starts, and the loan is underwritten to the terms of the permanent financing from day one. Under the Fannie Mae Selling Guide, only a defined set of loan terms may be modified when the loan converts to permanent — the interest rate, loan amount, loan term, and amortization type — and any modification must take place prior to or at the time of conversion. In plain English: your rate is generally established up front and carries through, and the paperwork simply “converts” rather than re-prices.

Here is what actually drives the number you are quoted:

• The permanent-loan pricing that day. Because you qualify on the permanent terms, your rate reflects permanent-mortgage pricing at lock, not a temporary construction rate.
• A construction premium. Lenders typically price construction financing a bit higher than a straight purchase — more on why below.
• The lock length. A build takes months, so you often need an extended lock that runs long enough to cover the construction window, and longer locks generally cost more in rate or points.
• Your file. Credit, down payment, occupancy, and the property type (site-built vs. manufactured) all move pricing the same way they would on any mortgage.

If you want to see how permanent-side pricing is behaving before you commit to a build, our Colorado Springs mortgage rates page is a better starting point than any single quote. For the full picture of how these loans are structured, start with our guide to construction loans in Colorado.

One-time-close vs two-time-close: when your rate is really locked

The lock timing is the whole ballgame, and it splits cleanly by structure.

With a one-time-close loan, you lock at the initial closing and that rate is designed to carry into the permanent phase. Some programs let the rate float during construction — but under a documented ceiling, not open-ended. Under HUD Handbook 4000.1, an FHA construction-to-permanent loan may carry a variable rate during construction: the lender and borrower must enter an agreement documenting the range in which the rate may float during construction and the point at which it locks in, and the borrower may lock in at a lower rate if one becomes available. The VA Lender’s Handbook (VA Pamphlet 26-7) takes a similar “ceiling-floor” approach: the agreement sets a maximum permanent rate, the Veteran can lock a lower rate if the market improves before the deadline, and the borrower must qualify at that maximum rate. The protection is the same in both cases — you are underwritten to the worst case, so a rate move during the build cannot blow up your approval.

With a two-time-close loan, you close the construction loan first, then close the permanent loan separately when the home is done. That second closing means a second lock, at whatever the market is doing months later. If rates fell during your build, that can work in your favor; if they rose, you absorb it. There is no ceiling protecting you the way a documented FHA or VA float ceiling does on a one-time-close. It is worth noting a recent structural change here: under the Freddie Mac Single-Family Seller/Servicer Guide, for applications received on or after February 4, 2026, Freddie’s two-time-close construction-to-permanent mortgages are considered refinance mortgages — a classification detail that can affect pricing and eligibility on that second close (general — confirm current).

We compare these two structures in depth in one-time-close vs two-time-close construction loans. If you want to see how each agency handles the build, our FHA, VA, USDA and conventional construction loans compared hub lays them side by side.

Our take on locking

Our take: For most Fort Carson families and first-time builders in El Paso County, the certainty of a one-time-close lock is worth more than the theoretical upside of re-locking lower on a two-time-close. You are already carrying the stress of a build; betting your permanent payment on where rates land six to twelve months out is a gamble most borrowers do not need to take. If you have a strong reason to believe rates will fall meaningfully and you can absorb it if they do not, the two-time-close conversation is worth having — but go in with your eyes open.

What is a float-down, and how does it differ from a float ceiling

Two similar-sounding features get confused constantly, so let us separate them.

• A float ceiling (the FHA/VA mechanism above) is a documented range that lets the rate move during construction up to a stated maximum you already qualified at. It is built into how the one-time-close loan is written.
• A float-down is a separate lender feature — sometimes offered as an option on an extended lock — that lets you re-lock lower one time if market rates improve by some threshold before you close or convert, while still protecting you from increases. Availability, cost, the improvement threshold, and how many times you can exercise it vary by lender and program.

A float-down is not free. It is typically paid for in a slightly higher starting rate or added points, because the lender is giving you optionality. Whether it is worth it depends on how volatile rates are and how long your build will run. Ask your loan officer three specific questions: what does the float-down cost, how much does the market have to move before you can use it, and what is the deadline to exercise it.

Why construction rates usually price a little higher

Borrowers are often surprised that a construction loan quotes above a standard purchase. There is nothing shady about it — construction financing carries more risk to the lender, and pricing reflects risk. The Consumer Financial Protection Bureau states plainly that “construction loans have higher interest rates than longer-term mortgage loans used to purchase homes.” A few reasons why:

• The collateral does not exist yet. On a purchase, the house is standing. On a build, the lender is advancing money against a home that is still a set of plans and a foundation, and money is released in stages as work is verified. Our explainer on how construction loan draws work covers that disbursement process.
• Longer locks cost more. Holding a rate for the months a build takes is worth more to you and riskier for the lender than a 30- or 45-day purchase lock, and extended locks price accordingly.
• Completion risk. Weather, permitting through El Paso County, contractor delays, and cost overruns all add uncertainty that standard purchase pricing does not carry.

The premium is generally modest and program-dependent, and it is not a reason to avoid building — it is simply a line item to budget for. For a deeper breakdown of the money side, see our guide to the construction loan down payment and our overview of construction loan requirements.

How the agency programs differ on rate handling

Each program treats the rate a little differently, and the differences matter when you are choosing a path:

• Conventional (Fannie Mae / Freddie Mac). Single-close loans are underwritten to the permanent terms and modify only defined terms at conversion; Freddie’s two-time-close construction-to-permanent mortgages are considered refinances for applications received on or after February 4, 2026.
• FHA. Allows a documented variable rate during construction, with a float range the lender and borrower agree to and a lock-in point (HUD Handbook 4000.1). You qualify once, up front.
• VA. Permits a ceiling-floor float where the Veteran can capture a lower rate if available but must qualify at the maximum rate in the agreement (VA Lender’s Handbook, VA Pamphlet 26-7). See our VA construction loan guide for Colorado Springs.
• USDA. Single-close rural builds are structured so the guarantee is issued after the interim close; confirm current rate-handling with your lender for the specific USDA product.

Whichever path fits, the rate mechanics are one piece of a larger decision. A local mortgage broker who runs all of these programs can price them against each other for your specific file — that is exactly the kind of comparison our Colorado Springs mortgage broker team does every day. Guideline references above are paraphrased from each agency’s published rules and are general — confirm current with your lender before you rely on them.

Frequently asked questions

Is my construction loan rate locked before the house is built? On a one-time-close construction-to-permanent loan, generally yes — you lock at the initial closing and that rate is designed to carry into the permanent mortgage. On a two-time-close loan, the permanent rate is not set until a second closing after completion, so it reflects the market at that later date.

Can my rate go up during construction? On a documented FHA or VA float, the rate can move within a stated range during the build, but only up to a maximum you already qualified at — so an increase cannot exceed the ceiling. On a two-time-close loan, the permanent rate is fully re-set at the second closing and is not capped by a construction-phase ceiling.

What is a float-down and is it worth paying for? A float-down lets you re-lock lower one time if rates improve before you close, while still protecting you from increases. It usually costs a bit more in rate or points. Whether it pays off depends on how much rates move and how long your build runs — ask your loan officer for the cost, the improvement threshold, and the deadline.

Why is my construction loan rate higher than a regular purchase? Construction financing carries more risk because the collateral is not yet built, funds are advanced in stages, and the rate lock has to run for months. The CFPB notes that construction loans generally have higher rates than longer-term mortgages used to purchase homes. The premium is typically modest and program-dependent (general — confirm current).

Does FHA or VA let me capture a lower rate if the market improves? Both can. FHA’s construction-to-permanent product allows a documented floating range with a lock-in point, and VA’s ceiling-floor structure lets a Veteran lock a lower rate if one becomes available before the deadline — in each case you must still qualify at the maximum rate.

Should I choose one-time-close or two-time-close in Colorado Springs? For most borrowers who want payment certainty — including Fort Carson families building in El Paso County — the one-time-close lock removes market risk from the equation. Two-time-close can make sense if you have a specific reason to expect lower rates at completion and can absorb it if they rise. Compare both with a broker before deciding.

719 Lending, NMLS #1601989. Equal Housing Opportunity. 719 Lending is a mortgage broker and is not affiliated with or endorsed by the FHA, VA, USDA, or any government agency. All rates, figures, and program terms in this article are general — confirm current with your lender before relying on them, and no specific rate or loan approval is implied or guaranteed. Last updated: July 2026.