Construction-to-Permanent Loans

Build and Finance Your Dream Home

What Are Construction-to-Permanent Loans?

Construction-to-permanent loans are a type of mortgage that combines financing for home construction with long-term financing into a single loan. This streamlined option eliminates the need for separate construction and mortgage loans, saving time and reducing closing costs. With this loan, you finance the building phase and then transition to a traditional mortgage once your home is complete.

Why Choose a Construction-to-Permanent Loan?

If you're looking to build your dream home from the ground up, construction-to-permanent loans provide a simplified way to finance both the construction and long-term ownership. With a single application and closing process, these loans help you avoid the hassle of coordinating separate loans.

Key Benefits of Construction-to-Permanent Loans

One-Time Close: A single loan for both construction and permanent financing reduces paperwork and closing costs.
Interest-Only Payments During Construction: Pay only the interest on the loan during the building phase to keep costs manageable.
Customizable Terms: Choose between fixed or adjustable-rate options for the permanent phase of the loan.

How Do Construction-to-Permanent Loans Work?

These loans are structured to cover the costs of building your home and seamlessly transition into a standard mortgage once the construction is complete. Here’s how they typically work:

Loan Application: Apply for financing based on estimated construction costs and the projected value of your completed home.
Construction Phase: Funds are disbursed in stages (draws) to pay for construction milestones. During this phase, you make interest-only payments.
Permanent Mortgage Phase: After the home is built, the loan transitions into a standard mortgage with principal and interest payments.

Who Qualifies for a Construction-to-Permanent Loan?

These loans are available to borrowers who:

Have a detailed construction plan and a licensed contractor.
Meet credit score, income, and down payment requirements.
Want to finance a custom home or significant renovations on a primary residence, vacation home, or investment property.

When Should You Consider a Construction-to-Permanent Loan?

This loan type is a great fit if you:

Are building a custom home from the ground up.
Want the convenience of financing construction and a permanent mortgage in one loan.
Prefer to minimize closing costs and streamline the loan process.

Other Factors to Consider for Construction-to-Permanent Loans:

Credit Score

Minimum Credit Score:

Most lenders require a credit score of 680 or higher to qualify for a construction-to-permanent loan. Some may allow scores as low as 620, but this often comes with higher interest rates or additional requirements.

Preferred Credit Score:

A score of 700 or above is generally preferred for securing the best rates and terms.

Income

Debt-to-Income (DTI) Ratio:

Most lenders require a DTI ratio of 43% or lower, which means your total monthly debt payments, including the new loan, shouldn’t exceed 43% of your gross monthly income.

Some programs might allow a higher DTI (up to 50%) for borrowers with strong credit profiles.

Stable Income:

Lenders typically require proof of steady income for the past 2 years, which can be verified through pay stubs, W-2s, or tax returns.

Down Payment

Minimum Down Payment:

A 20% down payment is standard for many construction-to-permanent loans to account for the increased risk and ensure sufficient equity in the property.

Some programs may allow as little as 10% down with strong credit and financials, but private mortgage insurance (PMI) may apply.

Equity as Down Payment:

If you already own the land where the home will be built, its value can often be used as part or all of the required down payment.

Other Factors

Builder Requirements:

The builder must be licensed, insured, and approved by the lender.

Detailed Construction Plan:

A comprehensive construction budget and timeline are required.

Reserves:

Many lenders require cash reserves equivalent to 6–12 months of mortgage payments to ensure you can cover costs during construction.

Why Work With Us for Your Construction-to-Permanent Loan?

We specialize in helping homeowners navigate the unique requirements of construction-to-permanent loans. From financing your home’s construction to locking in favorable mortgage terms, our team will guide you through every step of the process.

Start Building Your Dream Home Today

Construction-to-permanent loans offer a seamless way to finance the creation of your dream home. Contact us today to learn more, get pre-approved, and take the first step toward turning your vision into reality.

Thank you for choosing us. We are dedicated to helping you achieve your homeownership goals with personalized service and expert guidance. For more information or assistance, feel free to reach out to us anytime!