Loan option
Construction-to-permanent loans
A construction-to-permanent loan finances the build and then converts to a long-term mortgage, so there is one transaction rather than two. The details depend heavily on the lender, the builder, the project and the property.
How it works
How construction-to-permanent loans work
During construction, the loan funds in stages as work is completed, with the lender inspecting and releasing draws against a schedule agreed at the outset. Interest is typically charged only on the funds drawn so far.
On completion, the loan converts to a permanent mortgage. The appraisal is done subject to completion, meaning it values the home as it will be when finished, based on the plans and specifications.
The builder is underwritten too. Lenders review the builder's licensing, insurance, financial standing and track record, and they set requirements for the contract, the budget and the contingency reserve.
What to weigh up
- Timelines and cost overruns are the usual sources of difficulty. Understand who bears the cost of changes and delays before signing.
- Florida considerations such as windstorm requirements, elevation and permitting can affect both the build and the appraisal.
- Not all lenders offer this product, and those that do differ substantially in how they administer it.
Set by the lender, not by us
These vary between lenders and change over time. Nothing on this page is a quote, an approval, or a commitment to lend.
- Draw schedule, inspection process and contingency requirements
- Builder approval criteria
- How the interest rate is set for the permanent phase and whether it can be locked early
- Maximum construction period before conversion is required
- Property types and locations accepted
Nothing on this page is a rate quote, an approval, or a commitment to lend. Figures and requirements change, and they depend on your file.
Terms used on this page
- Appraisal
- An independent opinion of a property's value, prepared by a licensed appraiser for the lender, supported by recent sales of comparable properties.Some programs also apply property condition standards through the appraisal, which is where older housing stock can run into trouble.
Questions about this program
- Do I close twice?
- With a construction-to-permanent structure the intent is a single closing that covers both phases. Some lenders use a two-closing structure instead. Confirm which applies, because it affects costs and the rate.
- What happens if the build costs more than planned?
- That is governed by the loan documents and the construction contract, usually through a contingency reserve and a change-order process. It is one of the most important things to understand before you start.
Official sources
Program rules are set by these organizations and are updated periodically. Where this page and an official source disagree, the official source is correct.
- Explore loan options (opens in a new tab) — Consumer Financial Protection Bureau
- Flood Map Service Center (opens in a new tab) — FEMA
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Talk it through before you start shopping
Bring your situation, not your paperwork. A first conversation is about which programs actually fit and what the numbers look like — no documents, no credit pull, no commitment.