When it comes to mortgage loans for new construction, the construction-to-permanent loan is often the simplest option for a borrower. Whether you’ve already got a signed agreement with a builder, or you’re just exploring your options, it’s important to understand how these loans work. Every year, borrowers take advantage of construction-to-permanent mortgages to build the perfect home for their family. Here’s what you need to know before you apply.
What is a construction-to-permanent loan?
Also called “single-close” loans, construction-to-permanent loans differ from other construction loans by automatically converting to a standard mortgage when the home is complete. Otherwise, they work the same as other construction loans do: funds will be disbursed to the builder as normal over the construction period. Other loans might require you to refinance once the project is finished, but with a single-close loan, you will begin making payments to the lender once the home is complete– just as you would if you had purchased an existing home.
Construction-to-permanent loans are often best for borrowers who want a simple path to building their own home. Building is complex enough – this way, there’s no need to juggle financing the lot and construction separately. Because they automatically convert to a fixed-term mortgage, single-close loans also bring peace of mind to borrowers when the home is complete. This means there’s no need to worry about applying for another mortgage – just figuring out your move-in date!
Options for new home builders
If single-close construction mortgages aren’t the right option for you, take a look at our resources for new home construction loans. You might qualify for a stand-alone construction loan, for example, if you already own the lot you want to build on. A construction-to-permanent mortgage might also be an FHA construction loan or a VA new construction mortgage, both of which require a lower down payment than conventional mortgages.
Every borrower’s needs are different. Whether you’re building or shopping for your family’s next home, the team at The Federal Savings Bank is ready to help you navigate the process. Contact us at +1 877-788-3520 to learn more about your options for financing your next home.
Subject to credit approval. Terms and conditions may apply. Property insurance is required for all loans secured by property.
This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to your individual situation.
