Construction to Permanent Loan Process

The construction to permanent loan process isn’t as scary or complex as people might think. If you’re considering building your dream home rather than trying to hunt down a resale and buy it, you’re certainly not alone. Even if you’re more partial to the building instead of buying a newly constructed home, you’re probably wondering how the financing works. So, let’s take a look at the construction of the permanent loan process.

Construction to Permanent Loan Process

The construction to permanent loan process isn’t all that difficult to understand. In fact, all fancy lingo aside, it’s quite easy to grasp. For your benefit, here’s a quick look at the construction to permanent loan process and what to expect.

Construction Loans Explained

Home construction loans are a form of short-term, higher-interest financing used to pay for the building of a residential house. These differ from traditional homes because they are not based on fair market value. Instead, construction loan amounts are based on the value of the house once it’s complete.

Generally speaking, there are three types of construction loans: construction to permanent loans, construction only financing, and renovation loans. Since the latter two are self-explanatory, we’ll continue to focus on construction to permanent loans.

How Construction to Permanent Loans Work

To make it simple, we’ll contrast a construction to permanent loans with a traditional home mortgage. The latter of the two, traditional mortgage loans, cover the purchase price of a resale or even a new build residence. By contrast, construction to permanent loan pays for the building of a residence over the course of its construction in predetermined phases.

These phases are called “draws” and are installment payments which go out when certain benchmarks are met. The lender will inspect the project to ensure it meets requirements every step of the way.

Construction Loan Benefits

There are a few advantages of using a construction loan. One benefit is the borrower only pays interest during construction. (Due to the fact the house isn’t built.)

Another advantage is there are flexible terms. Meaning, you work with the lender to build a loan with terms which work for you and you’re situation. Unlike traditional loans, which take it or leave it in nature.

Yet another big benefit of a construction loan is the extra layer of scrutiny. While you might not initially think this is an advantage, it does work in your favor. This is because the lender will ensure the house stays within budget and on schedule

Comments

  1. AnonymousJune 2, 2021 at 10:40 AM

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