| When buyers are considering building a custom home or purchasing an existing home that needs renovation a "Construction to Permanent Loan" is an option to be explored. The beauty of this program is that you only have one closing which occurs before construction starts. Upon completion of the project a modification to the construction loan is made thereby convert to a permanent loan. During the construction period the buyer only pays interest on the payments that have been made to be contractor. These payments to the contractor are set up in the form of draws that are only released at predetermined stages of the project. The draw checks are made payable to both the buyer and the contractor thus helping to insure that the work is being completed to the buyer´s satisfaction. Between each draw period a title search is performed to be sure that all outstanding bills for the project have been paid.
Construction to Permanent Loans normally require a 5% down payment but should the client already own his own lot, the equity in that lot can be used as the down payment. The final interest rate for the permanent portion of the loan can be locked 30 to 60 days prior to the completion of the construction. The final loan program can be set up as either a fixed rate or an adjustable rate mortgage.
Recently we have seen a trend were some homeowners are utilizing Construction to Permanent financing for additions to current residences. |
