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What Is A Construction To Permanent Loan? (2021 Edition)

June 16, 2021 | chatterbuzz
Man preparing a construction to permanent loan

So, you want to build a home. If that’s the case, then you might be thinking about getting a home construction loan. But, when it comes to the vast amount of financing options available, which home-building loans are best? Let us introduce you to the construction to permanent loan


Typically, when it comes to building a home from scratch, it is recommended to get a loan for the initial land purchase and construction phase and then ANOTHER loan for the finished home.


Here’s the problem: this tends to become pricey since the home buyers have to pay for two closings.


 Instead, borrowers can opt for the all-encompassing construction to permanent loan, a spectacular financing option that eliminates the need for multiple loans and can save you time and money. 

Constructing a home in Montverde, Fl

In this article, our expert home-builders are here to tell you all about this simple financing option and guide you through your construction to permanent financing requirements. Let’s get started. 

What is a Construction to Permanent Loan? (Updated for 2021)


For starters, construction to permanent financing is a unique financing option that allows you to finance the entire home building process, from start to finish. 


Unlike other types of loans, a home loan for construction lets you purchase the land and build your dream home from the ground up, all under one umbrella. 

Benefits of a Construction to Permanent Loan


What if we told you that, under this type of loan, you can draw the money you need, when you need it. And what’s more? You only have to pay interest on the money you withdraw during the construction process! 


Talk about amazing flexibility. Other benefits of construction to home financing include:


  • Save time: Without the need to refinance interest rates later on, you can spend precious hours of your time focusing on more important home building processes
  • Save money: Since you only have to close one time, you can keep more cash in your pockets 


Here’s the downside: Since these types of loans typically require more involvement from your lender, there are several hearty construction to permanent financing requirements that other loans don’t typically demand. 


Keep reading to learn what you have to do in order to secure this type of loan.

Common Construction to Permanent Loan Requirements 


As you can see, these loans offer awesome advantages for anyone who wants to build a home. However, more often than not, lenders require strict protocol to secure a construction to permanent loan


Some of the most common types of requirements include:


  • Good credit score: Typically, home buyers will only be rewarded with a construction to permanent financing if they have a credit score of 680 or above
  • Higher down payment: It’s not uncommon for lenders to ask home buyers to provide an upfront down payment of 20% or more
  • Established construction plan: Before you receive financing, you may be asked to present a thorough construction plan and schedule to your lender


Other minor requirements vary but may include a written contract signed by your general contractor and proof of property insurance coverage. 


So, is this financing option worth it? Let’s take a quick look at the differences between a home loan for construction and other types of loans.

woman happy to buy a custom home

Know The Difference: Construction to Permanent Loan vs Other Options

Do you know what the difference between a construction to permanent loan is compared to a standard mortgage loan? What about a stand alone construction loan?


Who knew there were so many financing options!


When it comes to the convoluted world of loans, it’s important to always understand what you are getting yourself into. Luckily for you, our home-building experts are here to tell you all about these types of loans and how they compare to construction to permanent financing loans. 

Construction to Permanent Loan vs Standard Mortgage Loan

Also referred to as a conventional mortgage loan, a standard mortgage loan is a financing option that is not secured by a government agency. Instead, a private lender would offer this type of loan. 


One of the benefits of a standard mortgage loan is it offers a fixed interest rate. If you lock in the percentage at the right time, this could be extremely cost-effective for the future!


Here’s what’s interesting: a home loan for construction is actually a combination of a standard mortgage and a construction loan. Therefore, you reap the benefits of a locked in interest rate throughout the duration of the construction and post-construction phases. 

getting a home construction loan

Now, let’s move on to the stand alone construction loan. 

Construction to Permanent Loan vs Stand Alone Construction Loan 


First and foremost, a stand alone construction loan can be defined as the first loan you purchase to finance the construction phase of your home. 


Here’s the main difference between a stand alone construction loan and the latter: a stand alone loan often requires you to file a separate mortgage loan once construction is finished. Another key difference is that you cannot ensure you have the same mortgage rate as the first loan. 


So, when should you choose a stand alone loan over a construction to home financing? It’s simple: if you prefer to pay a smaller down payment, then a stand alone loan is a much better financing option.

Build Your Dream Home with Pillar Homes

Now that you know all about the benefits of a construction to home loan and how to secure one, all you need to do now is contract the perfect home builders to construct your dream home! At Pillar Homes, our seasoned home builders and preferred lenders are here to help you build on your lot

As one of Central Florida’s leading home builders, we know how to safely navigate the home building process. From finding a homesite and financing to adding the final finishes, we are here to lead you through each phase of construction. Contact us to learn how our team will build your home.


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