Construction-to-Permanent Loan

The application process for a construction-to-permanent (C/P) loan and traditional mortgage financing is very similar. The lender will review your income, assets, debts, and credit history as well as order an appraisal. When you apply for a C/P loan, however, you’ll also be asked to provide additional documentation related to the construction, such as the contract you’ve signed with the builder, the construction plans and specifications. The approval process might take a little longer because of the additional information that needs to be reviewed.

As your home is being built or renovated, you builder will periodically request funds from your lender to pay for completed work. Your lender will order an inspection to verify the work has been completed and will disburse money from your loan proceeds to the builder. These disbursements are called “construction draws.”

During the construction phase of your loan, you’ll be billed monthly for interest. The interest-only payment is calculated based on the amount of funds the lender has previously disbursed to your builder for completed work. Depending on the location of your property, you may also be required to pay a flood insurance premium with your interest payment. You won’t need to make any principal payments until after construction is completed and your loan moves to the permanent phase.