Construction-to-Permanent Loans

Building a new home requires some type of financing on the builder’s behalf, unless the builder has hundreds of thousands of dollars at their disposal. Construction companies that build homes will require working capital when purchasing land and building a home as well. In fact, financing property and financing a construction project to build a home can be stressful for both individual home builders and construction companies. A type of loan that is used for these situations is called a construction-to-permanent loan. A construction-to-permanent loan is a type of loan that can be used for renovation, construction projects from the ground up, and the property in which the construction is being performed.

Instead of financing the lot with one loan, and then financing the construction project with another, the borrower uses a construction-to-permanent loan to finance both sides of the equation. In other words, only one loan is used to finance a lot and a construction project. This method of using a construction-to-permanent loan offers convenience, and it also offers the construction company the ability to save time and money. There are more advantages that home builders should be aware of with a construction-to-permanent loan. For example, this type of loan only requires the borrower to pay the interest payments only during construction.

This is an advantage because the builder will not have to pay on the principal, rather they are renting the property until construction is finished, and they sell the home. Interest rates are also offered with a fixed rate that is usually a 12 month policy. This means that if interest rates were to dramatically rise during construction, they interest payments wouldn’t be affected on this type of loan. Knowing how much interest will be expected during the life of the loan is a way for a company to plan for their financial future with the construction project.

The options made available with a construction-to-permanent loan allow for enough flexibility that will meet the needs of different construction projects. Adjustable rates, fixed rates and interest only loans are all used for different types of construction projects or situations. Another benefit that construction-to-permanent loans are associated with is the fact that there is only one closing cost to deal with. If a builder isn’t using this type of loan, they will have a closing cost on the property and then a separate closing cost on the home that is being built and sold.

Having to only pay one closing cost will help the builder save money when compared to paying multiple closing costs on different circumstances. These loans are used to build residences and vacation homes. Construction companies and independent contractors will use a construction-to-permanent loan to finance their project for the main goal of mortgaging the property and home. This type of loan makes the process of purchasing a lot and building home for a mortgage easy when compared to other types of loans that are used for these construction projects. There are a few guidelines that builders must abide by when applying for a construction-to-permanent loan.

To qualify for this type of a loan, the residence must meet the requirements of being an occupied property that is either a primary residence, or a secondary residence. The unit or lot must be a single family home that isn’t attached to any other type of home or building. And finally, to qualify for this loan the borrower must be licensed as a contractor. Basically, these loans are not for the average person, and only those who specialize in building homes and are licenses are able to qualify for this type of financing.