Ultimate Guide on Construction-to-Permanent Loan
Nothing is a fun and fulfilling as living in a house with the design you’ve always wanted all your life. Everything is placed where and how you envisioned it – from the cabinets in the kitchen to the bedroom’s balcony. It’s the kind of utopia we all crave!
But there is one downside to constructing a home from scratch – costs associated with building materials and labor can be high. But that should not deter you from getting your dream house.
You have several loan options to help you construct the home you want, from a construction-to-permanent loan to construction-loan only. This guide will look at the construction-to-permanent loan option, including what it is, its benefits, how the process works, and where you can get a custom home builder.
Let’s get started!
What is a construction-to-permanent loan?
Also known as a single-close construction loan, a construction-to-permanent loan is a special loan that finances the cost of buying land, building a home on it, and later serving as a mortgage once it’s complete. It’s the go-to loan for individuals who want to build a custom home from scratch on a chose lot using a contractor of their choice.
Typically, you would have to take two separate loans to build your home: the first loan to buy land and build on it and a mortgage loan to finance the completed home. The construction-to-permanent loan serves both goals, however.
Benefits of a construction-to-permanent loan
Although relatively expensive than a standard mortgage loan, the construction-to-permanent loan offers you innumerable benefits.
First, you don’t have to apply for two loans and go through two closing processes with this loan. This makes it easy to set up your home without much paperwork involved in the process.
Second, this kind of loan is similar to a line of credit, where you’re allowed to draw the amount of money you need when you need it. This makes it possible to construct your home in the least time possible since you have funds at your disposal.
Third, you’re only charged an interest rate on the amount of money you borrowed during the construction phase. In fact, you make the interest payment when your home is being constructed. This means that the instalments will be lower as compared to other different loans. Depending on the bank, you get 12 or 18 months of interest-only payments.
Lastly, your builder requests payments from the lending firm, not you.
How does the construction-to-permanent loan work?
Once you have the perfect place to set a home, you approach a builder who will construct the custom home for you. The builder submits “draw requests” to a financial firm during the construction process, which then pays the builder. The total amount borrowed is added to your loan.
During the construction phase, the lender sends an inspector to the site to ensure the house progresses as planned and to their satisfaction. Once the construction is complete, the loan converts to a traditional fixed-rate permanent mortgage, which you can repay in 15 to 30 years, depending on what you choose.
The bottom line
Today, custom construction financing has become a norm among people. Specifically, the construction-to-permanent loans have helped millions of people worldwide build the custom homes of their choice. However, you need a reliable custom builder to have your house up and running in the shortest time possible.
If you’re looking for a custom home builder, look no further than Marc Julien Homes. Since 2009, we have built 75 homes for clients using expert techniques, high-end materials, and spectacular vision. We’re a phone call away for all your custom home queries.