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
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.
LTV or CLTV:
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