Construction-to-Permanent Loan: Important Terms to Know

A construction-to- permanent loan for your new home construction project can provide a

seamless and cost-effective method to financing. Depending on the terms you might receive from

separating this type of loan into a construction loan where you borrow the construction costs of

the project from one lender and upon completion purchase a permanent mortgage might be worth

considering. Because this market is relatively small, comparison shopping is not as easy as other

types of mortgage financing might be.

That said, it is important to understand the terminology surrounding construction-to- permanent

loan financing.

Construction-to- Permanent Loan:

This type of loan involves a short-term or interim

construction loan for the project and the permanent mortgage that will continue the financing

after the home is complete. Depending upon certain selling rules, the permanent mortgage may

be purchased by Fannie Mae.

The Construction Phase:

The lender will disperse payments for the project once the down

payment has been exhausted. The risk to the borrower is increased if the builder experiences

delays. The lender will require time-tables, plans and any other documents it might consider

relevant to their risk assessments.

The Construction Loan:

In a standalone product and included in a construction-to- permanent

product, this type of loan is a short-term arrangement, in most cases lasting a year and not more

than three. The money is disbursed in stages and, based on the plans involve the cost of

improvements to the lot. The schedule is based on previously arranged and submitted plans.

The Permanent Loan: If the borrower chooses to combine the financing into a single product,

the permanent loan will become active upon completion of the construction phase and

subsequent appraisal of the improved property. The borrower may consider purchasing this loan

as a standalone product if the terms of this, much lengthier loan prove favorable. This portion of

the loan is considered long-term, lasting from 15-30 years in length.


Loan-to- Value or Closing Loan-to- Value are important considerations for the

borrower. While the permanent mortgage is scheduled to kick in at the completion of the project,

the value of the home may not be the same as the terms dictated. If this value falls below the

80% mark, the borrower must make up the difference.

Limited Cash Out Refinance Transaction:

In this situation, the borrower owns the land and

the loan is based on the construction cost and the finished appraised value of the lot and its



How can we assist you today?


On behalf of The Jones Group @ Sunriver Realty

Nola Horton-Jones, Principal Broker/Realtor | ABR, C-RIS, e-PRO, GREEN, RSPS, CCIM Candidate

Bryce Jones, Broker/Realtor | ABR, CRS, e-PRO, GREEN, GRI, RSPS, SFR

Karen Marcy, Broker/Realtor

The Jones Group @ Sunriver Realty | 57057 Beaver Drive | Sunriver, OR 97707

Mobile: 541-420- 3725 | Mobile: 541-420- 4018 | Mobile: 503-327- 9611 | Fax: 541-593- 5123



Licensed in Oregon