Understanding the Construction to Permanent Loan Application Process

The construction to permanent loan process requires expert help in the form of an experienced loan officer. The process requires the same documentation as a conventional mortgage. Down payments are typically required, and interest rates can vary among different lenders.

Application Process

The appraisal value in a construction to permanent loan takes into account the projected finished value of the property, rather than the current value. A lender-approved contractor will be required to submit a detailed cost estimate. This estimate should include material and labor costs, as well as incidentals such as permit fees.

The Construction Period

It can take up to 2 years to complete the building process. Construction loans are basically lines of credit paid out in the form of draws, or incremental payments, scheduled to be disbursed at different stages of completion. Lenders usually perform inspections to assure that work has actually been properly completed before draws are issued. During this period, the loan is interest-only, and borrowers can defer payments until it is converted to a permanent mortgage.

Final Stage

When the property is issued a certificate of occupancy, for the lender’s purposes, it is considered to be complete. At this point, the construction to permanent loan is converted into a home mortgage, typically one with a 30-year term of monthly payments. This loan will be made for the amount of the construction cost, interest accrued during construction, and closing costs.