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Mountain Ridge

Construction to Permanent Loan Overview: Financing Your New Home Build

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What is a Construction to Permanent Loan?
A Construction to Permanent loan (also known as a Construction-to-Perm loan) is a type of mortgage that provides funding for both the construction of a new home and its permanent financing once the construction is complete. This loan combines the two phases of financing into one loan with one closing, simplifying the process for homebuilders and homeowners

Advantages of a Construction to Permanent Loan

One Loan, One Closing
The loan covers both the construction and the permanent mortgage, meaning you only have to go through the approval and closing process once.
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Advantage
Lower Closing Costs
Since the loan consolidates the construction and permanent phases, you save on closing costs typically associated with taking out two separate loans.
Interest-Only Payments During Construction
During the construction phase, you may only pay interest on the loan, reducing your monthly payment
Financing for the Entire Project
The loan covers both the construction costs and the permanent mortgage, including land acquisition, labor, materials, and other related expenses.
Streamlined Process
Flexible Loan Terms
Offers long-term financing options once construction is complete, providing the stability of a permanent mortgage with competitive interest rates.
The single loan reduces paperwork and administrative tasks, making the process faster and more straightforward.

Construction to Permanent Loan Guidelines

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Guideline
Credit Score
A minimum credit score of 620 or higher is generally required, though it may vary based on the lender.
Down Payment Requirements
Typically 10-20% down, depending on the borrower’s credit and the lender's requirements.
Loan Term
The loan has two phases: the construction phase (6 months to 2 years) followed by a permanent mortgage (typically 15-30 years).
Interest Rates
Competitive interest rates that are often higher during the construction phase, but lower once the permanent financing kicks in.
Loan-to-Value (LTV)
Typically 80-95% LTV, depending on the borrower’s financial profile and the type of property being built.
Appraisal Requirements
A property appraisal is required to determine the estimated value of the home both during and after construction.
Transition to Permanent Loan
After construction is complete, the loan automatically transitions into a permanent mortgage, converting from interest-only payments to full mortgage payments.
Closing Costs
Closing costs are typically lower because there's only one closing, but they may include specific construction-related fees and inspections.
Rural Landscape View

Is a Construction to Permanent Loan Right for You?

Best For

Homebuyers or builders looking to finance both the construction and permanent mortgage of a new home with one loan, for simplicity and cost efficiency.

Main Benefits

One-time closing, reduced fees, competitive rates, and the convenience of having a single loan for both the building phase and long-term mortgage.

Considerations

Requires careful planning, as both construction progress and financial stability will be closely monitored by the lender. Consider the costs involved with construction and final loan payments.

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