The Basics Of Construction to Permanent Loans


A popular mortgage to obtain before the Great Recession was construction-to-permanent financing. Not only was it a common loan, but it was also easy to get.

Also known as one-time close construction loans, these have become obscure today due to the inherent risks a lender must take to issue these types of mortgages — the Great Recession still lingers in their minds.

Imagine lending someone money for something that doesn’t exist. That’s what occurs here: A lender extends credit with the expectancy that a home will be built, and that it will be worth at least what was lent.

On one-time close construction, the loan is underwritten and closed prior to breaking ground. There are no further closing costs, appraisals, fees or needs for credit documentation once the home has been built and finished.

Before that can happen, an underwriter must approve your mortgage. He or she will require a construction timetable, detailed plans and a realistic budget, which is often referred to as the “story” behind the loan.

After you have been approved, and the loan closes, two more phases need to take place. I will discuss this next month, but until then, here are some facts about construction financing you may find interesting:

  • 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).

Florida Mortgage Firm offers VA, FHA and conventional constructions loans, so let us know if you have any questions.