Construction-to-permanent, step by step

The short version

A construction-to-permanent loan covers the build and then becomes the mortgage on the finished home. The kind I place is single-close: one approval and one closing, instead of a construction loan followed by a separate mortgage.

Before the build

Before any money goes out, the lender reviews the borrower and the project together. That generally includes:

• the builder, who generally has to be approved by the lender, including the builder's license, the plans, the budget and the contract
• the appraisal, based on the plans and specifications, valuing the home as it will be when it's finished
• the budget, which lenders generally expect to include a contingency for the unexpected

If you already own the land

Land the borrower already owns can count toward the deal with the lenders I work with, depending on the lender and the loan. How it counts is something to go through with the specific lender and the plans.

During the build

Funds aren't paid out all at once. They go out in stages as the work is inspected, and the timeline depends on the build.

Delays, change orders and cost overruns are the real risks in any build. That's what the contingency is for, and it's why the contract and the budget are reviewed closely before the build starts.

When it's finished

When the home is complete, the loan converts to the permanent mortgage without a second closing.

Two common misreadings

Building doesn't have to mean two loans and two closings. That's what single-close is for.

A government-backed loan can be used to build. VA construction-to-permanent is one of the options I place in Georgia and Florida.

Questions worth asking early

A few questions that make the process clearer from the start:

• Is the builder already approved with the lender, or does that review need to start?
• What does the contract say about change orders, and who pays for them?
• How are inspections and payouts scheduled?
• What happens if the build runs longer than planned?

From the source

VA explains its purchase loans, including building a home, on its own site:

• VA: purchase loans, to buy, build or improve a home

Words in this lesson