My last article summarized the basics of construction-to-permanent financing with more emphasis on the underwriting portion of the process. In this article, I will discuss the following two phases.
After a C/P loan has been underwritten, approved and closed prior to breaking ground, construction may begin. Once that part is complete, the “permanent” phase may commence.
During the construction phase, a house is built and is typically done so within a designated time period.
This portion of the project is put on a “draw” schedule. As a builder requests funds in the form of a “draw” to fund the completion of the structure, a lender will send an inspector to review the progress.
Once a home is ready to be deemed completed, a “certificate of occupancy” is requested. Once it is issued, the construction phase has ended.
The permanent phase of a construction-to-permanent mortgage loan is also known as “modification.” After construction has ended and a loan has closed, mortgage payments will modify into a permanent mortgage.
There are no fees or underwriting requirements (e.g., new paystubs or bank statements) at this stage. Simply sign a couple of modification documents and final releases, and then move into a brand-new home. Your monthly mortgage payments, which were established at closing before construction started, will begin.
For anyone who missed the first segment of this article, here are some interesting facts about construction financing:
- You don’t have to own your land lot.
- You can buy land and include the cost in your financing since the lot will be paid for at closing.
- You can own land that is currently financed, and the balance due will be included in your new loan.
- You can have land gifted to you by a family member.
- You can use the equity in a land lot that you either own, or have financed, or was gifted to be applied to the new loan.
- You can include the closing costs in your financing (depending on how you want to structure the loan).