Construction to permanent loans are a way for you to get the money you need to both buy the land your house will be built on and to pay for the construction of it. These loans are a good option if you have reached a point of financial stability in your life and want to save time by only having one loan vs. multiple.
Because a construction to permanent loan is a combination of mortgages, and the lender doesn’t have a house they can sell to recoup their money, construction to permanent loans are harder to get than a traditional mortgage.
Construction to permanent loans also come with higher interest rates and require larger down payments, so if you have a large debt to income ratio or your financial situation could be shaky in the next five or ten years, you’ll likely want to find another type of loan.
There are several benefits to a construction to permanent loan:
There are a few drawbacks to these types of loans too:
You can get construction to permanent loans at local and regional banks, credit unions, and banks that you already have an existing relationship with.
If a construction to permanent loan sounds like it might not be the best fit, you do have other options.
Construction-Only Loan | Land Loan | Owner- Builder Loan | End Loan | Construction to permanent loan | |
Can be used to buy the land | X | X | |||
Can be used for construction | X | X | X | ||
Paid directly to the builder | X | X | X | X | |
Is also your mortgage | X | X | |||
Higher interest rates than traditional mortgages | X | X | X | X | |
20%-25% down payment is usually required | X | X | X | X | |
Minimum credit rating of 620 | X | X | X | X | X |
And getting a construction to permanent loan is a simple four step process.
If you have the financial stability and are ready to build your dream home, construction to permanent loans are a great option. If you can wait, or think things could be shaky in five or ten years, you have alternatives. Either way you now have the information needed to make a decision on whether or not construction to permanent loans are the right choice for your situation.
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