Construction-to-Permanent Loans
Learn about mortgage programs that combine construction and permanent financing into a single loan. Connect with lenders who understand custom home building.
Construction-to-Permanent Loans: Build Your Dream Home with One Loan
Construction-to-permanent loans provide mortgage financing that combines construction and permanent financing into a single loan.
This specialized program recognizes that building a custom home requires both construction financing and permanent mortgage, and traditional lenders often require separate loans for each phase.
For custom home builders, those with land who want to build, and borrowers wanting to build from the ground up, construction-to-permanent loans offer a streamlined path to homeownership when traditional financing requires multiple loans and closings.
What is a Construction-to-Permanent Loan?
- Definition
- A construction-to-permanent loan is a specialized mortgage program that combines construction financing and permanent mortgage into a single loan. This program allows you to build your dream home and then automatically convert to permanent financing without requiring a second closing.
- How it works
- During construction, you pay interest-only payments on the amount drawn. Once construction is complete, the loan automatically converts to permanent financing with principal and interest payments, all without requiring a second application or closing.
- Key advantage
- Construction-to-permanent loans eliminate the complexity of managing separate construction and permanent loans, allowing you to build your dream home with a single financing solution that handles both phases seamlessly.
How Construction-to-Permanent Loans Work
A construction-to-permanent loan combines construction and permanent financing into a single loan. You typically need a 680 credit score, 20% down payment, and detailed construction plans. This program may be suitable for custom home builders or those with land who want to build their dream home.
Basic Construction-to-Permanent Loan Eligibility
You may be eligible for a construction-to-permanent loan if you have:
- Stable income and employment
- 680 credit score
- 20% down payment
- Detailed construction plans and budget
Common Construction-to-Permanent Loan Eligibility Requirements
- Credit score:
- 680 FICO score
- Down payment:
- 20%
- Construction plans:
- Detailed plans and specifications required
- Builder:
- Licensed, experienced builder approved by lender
- Loan amounts:
- Up to $2,000,000
- Reserves:
- 6 months of reserves
- Income verification:
- Standard W-2, pay stubs, tax returns
- Land ownership:
- Must own the land or have purchase contract
- Construction timeline:
- As few as 6 months to complete
- Completed value:
- Must justify total loan amount
Did you know: Construction-to-permanent loans automatically convert to permanent financing without a second closing.
Why You Need Another Lender
If you've been denied financing for building your dream home, you're not alone. Many traditional banks simply don't offer programs designed for custom home construction. They require separate construction and permanent loans, making the process complex and expensive.
Your first bank just doesn't offer the right program for you.
Think of it like when a customer asks for something your business doesn't offer. Maybe they want delivery but you only do pickup, or they need a service you don't provide. You're not saying no because there's anything wrong with them—you just don't offer that particular service. Same with mortgages. Traditional banks work great for existing homes, but they don't offer the programs that custom home builders need.
Traditional banks use conventional underwriting that requires existing properties. Building a custom home requires specialized financing that understands construction timelines, builder relationships, and the conversion process. Conventional programs see the construction risk and can't approve you, even though you have the land and plans ready.
Construction-to-permanent loans are perfect for custom home builders, those with land who want to build, borrowers wanting to build from the ground up, those with stable income and good credit, or anyone who wants to avoid the complexity of separate construction and permanent loans.
This isn't about finding loopholes or gaming the system. It's about working with lenders who understand custom home building and can see the potential value. Construction-to-permanent loans are offered by lenders who work with custom home builders every day. They look at the completed home value—what your dream home will be worth when construction is finished—rather than just the construction risks.
For a no obligation conversation about your mortgage, contact Coby Matush (#1531494) of Novus Home Mortgage at 724-787-7778.
Example Use Cases and Scenarios
Did you know: Construction-to-permanent loans can finance up to $2,000,000 including both construction costs and permanent financing.
How Do Construction-to-Permanent Loans Work?
Construction-to-permanent loans follow a specialized mortgage process that combines construction and permanent financing. The key difference is two-phase financing - these programs handle both construction and permanent phases in one loan.
The Construction-to-Permanent Loan Process
- 1. Construction Planning & Review Process
- The process begins with construction plan review where lenders examine your detailed plans and specifications, followed by builder approval to verify credentials and experience. Lenders then complete budget analysis to ensure construction costs are reasonable, and completed value assessment to determine the property's potential worth. This specialized evaluation allows financing based on future value rather than current land value.
- 2. Two-Phase Financing Structure
- Unlike traditional loans that require separate financing, construction-to-permanent loans provide one loan that handles both phases. The construction phase includes interest-only payments on drawn amounts with funds released as building progresses, followed by automatic conversion to permanent financing with principal and interest payments upon completion. This eliminates the need for multiple loans and closings.
- 3. Specialized Underwriting
- Experienced underwriters review your complete profile using construction-specific criteria. They assess your ability to manage construction projects including builder relationships and timeline management, property potential through completed value analysis, and construction feasibility through plan review and budget analysis. The underwriting process includes the same risk assessment as conventional loans, just with construction-specific considerations.
- 4. Construction Management & Conversion
- Once approved, the construction process includes builder coordination, progress inspections, and fund releases as work is completed. Upon construction completion, the loan automatically converts to permanent financing without requiring a second application or closing. You'll sign standard mortgage documents plus construction agreements, pay standard fees plus construction management fees, and receive the same consumer protections as conventional loans.
Construction-to-Permanent Loans vs Conventional Mortgages
Understanding the key differences between construction-to-permanent loans and conventional mortgages can help you choose the right financing option for your situation.
| Feature | Construction-to-Permanent Loans | Conventional Loan |
|---|---|---|
| Who Qualifies | Custom home builders, those with land who want to build, borrowers wanting to build from the ground up, those with stable income and good credit, and anyone wanting to avoid separate construction and permanent loans | W-2 employees, salaried workers |
| Income Documentation | Standard income verification including W-2s, pay stubs, tax returns, and bank statements for down payment verification | W-2s, pay stubs, tax returns |
| Minimum Credit Score | 680 FICO score | 620 |
| Minimum Down Payment | 20% down payment | 3% |
| Private Mortgage Insurance | Not applicable | Private mortgage insurance (PMI) |
| Occupancy Type | Primary residences only | Primary residences, second homes, investment properties |
| Property Type | Custom-built homes, new construction on owned land | Single-family homes, condos, townhouses, 2-4 unit properties |
| Loan Limits | Up to $2,000,000 depending on income, construction costs, and property value | $766,550 (2024) |
| Interest Rates | Above market rates | Market rates |
| Processing Time | As few as 4 weeks | 30-45 days |
| Closing Costs | Similar to conventional loans, may include construction plan review fees | 2-5% of loan amount |
| Prepayment Penalty | None | None |
| Reserves Required | 6 months of reserves typically required | 2-6 months of PITI |
| Debt-to-Income Ratio | Up to 45% | Up to 43% |
| Maximum Loan Amount | $2,000,000 | $766,550 |
| Appraisal Requirements | Specialized appraisal considering completed value | Standard appraisal required |
| Occupancy Requirements | Primary residence for 12 months | Primary residence for 12 months |
| Non-Warrantable Condos | Not applicable (custom home building) | Not eligible |
| Manufactured Homes | Not applicable (custom home building) | Eligible if on permanent foundation |
| ADU Properties | Eligible as part of construction project | Not eligible |
| Barndominiums | Eligible with proper plans and builder approval | Not eligible |
| Tiny Homes | Eligible if meets minimum square footage requirements | Not eligible |
| Mixed-Use Properties | Eligible for residential portion | Not eligible |
| Rural Properties | Eligible | Eligible |
| Feature | Construction-to-Permanent Loans | Conventional Loan |
|---|---|---|
| Who Qualifies | Custom home builders, those with land who want to build, borrowers wanting to build from the ground up, those with stable income and good credit, and anyone wanting to avoid separate construction and permanent loans | W-2 employees, salaried workers |
| Income Documentation | Standard income verification including W-2s, pay stubs, tax returns, and bank statements for down payment verification | W-2s, pay stubs, tax returns |
| Minimum Credit Score | 680 FICO score | 620 |
| Minimum Down Payment | 20% down payment | 3% |
| Private Mortgage Insurance | Not applicable | Private mortgage insurance (PMI) |
| Occupancy Type | Primary residences only | Primary residences, second homes, investment properties |
| Property Type | Custom-built homes, new construction on owned land | Single-family homes, condos, townhouses, 2-4 unit properties |
| Loan Limits | Up to $2,000,000 depending on income, construction costs, and property value | $766,550 (2024) |
| Interest Rates | Above market rates | Market rates |
| Processing Time | As few as 4 weeks | 30-45 days |
| Closing Costs | Similar to conventional loans, may include construction plan review fees | 2-5% of loan amount |
| Prepayment Penalty | None | None |
| Reserves Required | 6 months of reserves typically required | 2-6 months of PITI |
| Debt-to-Income Ratio | Up to 45% | Up to 43% |
| Maximum Loan Amount | $2,000,000 | $766,550 |
| Appraisal Requirements | Specialized appraisal considering completed value | Standard appraisal required |
| Occupancy Requirements | Primary residence for 12 months | Primary residence for 12 months |
| Non-Warrantable Condos | Not applicable (custom home building) | Not eligible |
| Manufactured Homes | Not applicable (custom home building) | Eligible if on permanent foundation |
| ADU Properties | Eligible as part of construction project | Not eligible |
| Barndominiums | Eligible with proper plans and builder approval | Not eligible |
| Tiny Homes | Eligible if meets minimum square footage requirements | Not eligible |
| Mixed-Use Properties | Eligible for residential portion | Not eligible |
| Rural Properties | Eligible | Eligible |
Real-World Example: Construction-to-Permanent Loans
The Couple's Journey to Their Dream Home
David and Sarah had been dreaming of building their perfect home for years. They had purchased a beautiful 2-acre lot in their preferred neighborhood and had been saving diligently for their construction project. With stable jobs, excellent credit scores of 720 and 735, and a clear vision for their dream home, they felt confident about their ability to build.
However, when they approached their local bank for financing, they were told they would need two separate loans: a construction loan for the building phase and a permanent mortgage for the completed home. This would require two applications, two closings, and significantly higher costs. The complexity and expense seemed overwhelming.
Frustrated but determined, they began researching alternative financing options and discovered that another lender offered construction-to-permanent loans. This specialized program would allow them to finance both the construction and permanent phases with a single loan, eliminating the need for multiple applications and closings.
The process was straightforward: they provided detailed construction plans from a licensed builder, a comprehensive budget breakdown, and standard mortgage documentation. The lender approved them for a $600,000 construction-to-permanent loan that would cover both the construction costs and convert to permanent financing upon completion.
During construction, they made interest-only payments on the amount drawn. Once their dream home was complete, the loan automatically converted to permanent financing with principal and interest payments, all without requiring a second application or closing.
This story illustrates how construction-to-permanent loans can bridge the gap between having land and plans and living in your dream home, even when traditional lenders require complex multiple-loan arrangements.
Did you know: Construction-to-permanent loans require only 20% down payment.
Benefits & Considerations
Construction-to-permanent loans offer significant advantages for custom home builders, but they also come with important considerations to weigh.
Key Benefits: Single loan, automatic conversion, streamlined process
- Single loan for construction and permanent
- Eliminate the complexity of managing separate construction and permanent loans. One application, one closing, one payment structure.
- Automatic conversion to permanent
- No second application or closing required. The loan automatically converts to permanent financing upon construction completion.
- Interest-only payments during construction
- Pay only interest on the amount drawn during construction, making it easier to manage payments while building.
- Competitive financing
- Interest rates are typically only slightly higher than conventional loans, making custom home building affordable.
- Professional builder network
- Lenders work with experienced builders who understand construction-to-permanent loan requirements and timelines.
- Proven solution
- Thousands of custom home builders have used construction-to-permanent loans successfully to build their dream homes.
Important Considerations: Higher down payment, complex process, builder requirements
- Higher down payment
- Minimum 20% down payment required, which is higher than some conventional loan options.
- More complex underwriting
- Construction-to-permanent loans require additional documentation and review, making the process more complex than conventional loans.
- Builder approval required
- You must work with a licensed, experienced builder approved by the lender, which may limit your builder choices.
- Construction timeline management
- You must complete construction within the specified timeline, which requires careful project management.
- Lender availability
- Not all lenders offer construction-to-permanent loans, so you'll need to work with specialized lenders who understand custom home building.
Frequently Asked Questions About Construction-to-Permanent Loans
Get answers to the most common questions about construction-to-permanent loans. Whether you're wondering about qualification requirements, construction options, or how the process works, we've covered the essential information below.
What is a construction-to-permanent loan?
How do construction-to-permanent loans work?
Who qualifies for construction-to-permanent loans?
What documents do I need for a construction-to-permanent loan?
How much can I borrow with a construction-to-permanent loan?
What is the minimum down payment for construction-to-permanent loans?
How long does the construction phase last?
Do I need a builder for a construction-to-permanent loan?
What happens if construction takes longer than expected?
Can I use construction-to-permanent loans for investment properties?
How do lenders evaluate construction projects?
What are the interest rates during construction?
Can I refinance after construction is complete?
Next Steps: Continue With Your Mortgage
Construction-to-permanent loans may provide a path to homeownership for custom home builders who need combined financing. Our listed loan officers understand custom home building and can help determine if this program might fit your situation. They'll review your construction plans, assess eligibility, and guide you through the process.
For a no obligation conversation about your mortgage, contact Coby Matush (#1531494) of Novus Home Mortgage at 724-787-7778.
Coby Matush
Loan Officer at Novus Home Mortgage
Coby Matush Customer Reviews
Read verified customer reviews for Coby Matush at Novus Home Mortgage. This is real feedback from real borrowers who used Coby Matush and their colleagues for a mortgage loan.
"Michelle helped us for several months before we chose a home during the preapproval process and she was extremely great and responsive. Then we worked with Kevin and he was also really responsive and easy to contact by email and by phone. I felt like he was available when I had a question and I appreciated being able to tie off a lot of things by email since I'm usually working at my PC. He also explained things in a way that made sense and kept us updated on every step of the process along with videos that explained it. I appreciate all the help in purchasing our first home."
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Important Compliance Information
Disclaimer: This information is for educational purposes only. AnotherLender.com is not a lender and does not make loans. We connect borrowers with licensed mortgage professionals. All loan approvals are subject to lender underwriting guidelines and individual qualification. Rates and terms may vary. Consult with a qualified mortgage professional for personalized advice.