4 Advantages of Construction to Permanent Loans

Construction to permanent loans are finances issued from lenders to borrowers that are originally used for short-term construction purposes but are then transferred to long-term mortgage agreements. This type of loan is used when a borrower foresees needing a long-term loan for financing a home when he or she first applies for money to build that home. Construction to permanent loans carry many advantages for a borrower. 

1. Save Money

With construction to permanent loans, technically two loans are negotiated through one transaction. There is only one closing, one set of closing fees, and one set of processing fees. Specifics can be set for each phase of the loan, such as when money is paid out to a contractor verses when the borrower receives money. Closing costs and processing fees can amount of thousands of dollars. Eliminating these costs saves real money in real time.  

2. Secure Low Interest

With this type of loan, a borrower does not have a lot of negotiating power. The interest rates on construction to permanent loans are fixed. Because the contract for the long-term loan is signed even before the property is built, there is a lot of time for the interest rates to change over the term of the loan. If the market interest rate rises dramatically years down the line, the borrower still only needs to pay the low interest negotiated during the construction period of the loan. If a borrower is worried that interest rates will decline and he or she will be stuck paying a high, fixed rate, a borrower can also secure a float-down interest rate for the permanent portion of the loan. This means that if interest rates do go down, the borrower’s payments readjust. Also, a borrower can renegotiate the terms of his or her loan.     

3. Save Time and Energy

One lender and one agreement mean less paperwork, less credit checks, and less documentation. The entire process of applying for a loan takes time and energy to complete. With a construction to permanent loan, a borrower only needs to apply and be approved once.

4. Make it Personal

A borrower can negotiate the amount of time that the loan finances construction. Usually, the loan for construction lasts around 180 days and then it switches to a permanent loan.