Are you wondering how a construction to permanent loan works? You are in the right place. Also called “single-close” construction loans, a construction to permanent loan helps simplify a homebuilder’s experience by automatically converting the construction loan into a standard 15- or 30-year mortgage after the construction process is completed. These are an especially great option for first-time builders who don’t want to go through another mortgage application process for the home they’ve already spent so much time on.
How does a construction to permanent home loan work? This is the process
If you are approved to convert a construction loan to a mortgage automatically, you will only need to have one closing on your home loan. After closing, the builder will begin their work on your home, regularly drawing from the balance of your loan as the build progresses. When the project is complete, you will begin making monthly payments to the lender, just like if you’d purchased the home already built.
By closing once, borrowers are exempted from paying application fees, title fees, and appraisal fees generally required with a second closing. Once they understand how a construction to permanent loan works, and they see just how much time and money they can save, many borrowers settle on this consumer-friendly option for their home construction loan.
What are the Construction to Permanent Loan Requirements?
If you are interested in obtaining a construction to permanent loan, be aware that income and credit score requirements will usually be higher than they are for standard mortgages. This is a reflection of the higher risk that construction mortgages pose to lenders. Your builder will need to provide their own documentation to the lender, to show that they are licensed, insured, and financially secure enough to complete your home.
Consider speaking with an expert loan officer at The Federal Savings Bank by calling 877-788-2520.They can help you make a plan to build or purchase your next home. They can also answer any questions you have about the process of applying for a construction mortgage. For more information you can also check out our Learning Center for New Construction.
Subject to credit approval. Terms and conditions may apply. Property insurance is required for all loans secured by property.