Considering building a house? Read to find out the construction to permanent financing process.
Note that if you have found a piece of land or lot that is ideal but are not ready to break ground, a lot loan may be the best option for you.
Often, the current landholder may be able to sell to you directly and work out a private payment plan.
Find a trusted construction loan lender and prepare:
Financing will cover the cost of the lot and the interim construction. The interim construction includes the building, architectural design, utility hook-ups, water well, septic system, flatwork, driveway and or pool. Interim or construction financing describes the first half of the "construction-to-permanent" loan name, while the final, permanent mortgage accounts for the latter.
The application process goes this way:
The interim/construction loan is a line of credit. This line of credit is established solely for paying the costs associated with the building of your custom home. It works just like a credit card. You make a charge as you need money to pay the construction bills. This charge is called a draw.
How interim construction loan draws work:
Borrowers can opt for a one-time or two-time close construction loan.
One-time Close Construction Loan: A one-time close interim or construction loan for your custom home requires you to close on the construction loan. When your home is complete, your tax and insurance escrows are collected then converted to a permanent loan program of your choice.
Two-Time Close Construction Loan: These come into play if your construction loan lender does not do permanent loans and requires repayment upon completion.
At the intial closing and throughout construction, interest only payments are made to the lender. Upon project completion, a second closing with another lender is required to refinance the loan to a permanent mortgage.
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