Construction to Permanent Loan

What is a Construction to Permanent Loan?

A Construction to permanent loan should be at the forefront of consideration if you are planning on building your home as an owner-builder. With some advanced planning you could save thousands of dollars by having your entire loan rolled into one package. A standard construction loan is typically a short-term loan and lasts 12 to 18 months. While only the interest is due during this period, if a second loan (i.e. mortgage) is required upon completion of construction, then you can expect all the closing fees to follow (e.g. loan origination, title insurance etc.). The construction to permanent loan is a simple means to ensure that you pay closing costs only once.  Upon the completion of your home, the loan converts to a standard mortgage.

Things to Consider with a Construction to Permanent Loan


Be aware of the market conditions and interests rates during your closing. Since you may lock yourself into certain rates prior to construction, there may be little room to negotiate afterward.  Try to negotiate your loan with a float-down interest rate prior to closing.

Loans with the float-down option will work to your advantage. Assuming that the interest rates decline, you will add additional savings. In the event that you do not have these options, review your loan documents for prepayment penalties. If the interest rates drop significantly, refinancing may be a plausible option for you.