How Construction to Permanent Financing Works
- Application: Start by choosing your lender and applying for a construction loan. After reviewing your application, you will be notified if you’ve been pre-approved for both a construction loan and a permanent loan. For qualified applicants, a minimum down payment of 5% is required if the loan amount is under $726,200 (certain programs may allow for a minimum down payment as low as 3%). With a 5% down payment, you will have a single permanent loan with mortgage insurance at 95%.
- The Appraisal: Once plans and specifications are received from the builder, an appraisal is ordered. The appraisal is done as-complete with the information you have submitted. After the appraisal is received, your loan package is submitted for approval.
- Construction Loan Approval & Draws: Upon approval, you can close on the construction loan. If applicable, your lot will be paid off with the first draw, title transferred to your name, and closing costs paid. The builder typically takes draws (payments) throughout the construction phase. During this phase, you will only be charged monthly interest payments on the amount of the loan advanced. At completion, the loan may be refinanced into a permanent loan. Escrows will also be set up for your property taxes and homeowners insurance.
- Lock Your Permanent Loan Rate: Once the home is near completion, you have the ability to lock the interest rate on the permanent loan. Merchants Bank offers 30-, 45-, 60-, and 75-day lock options.
- Converting to Permanent Loan: When the home is complete, the appraiser performs a final inspection and that, along with updated income and asset documentation, is submitted to underwriting for approval on the construction loan refinance to make the loan permanent. If approved, you close on your home and move in. Converting from construction to permanent loan may allow for reduced fees on permanent financing with local servicing.
Our lenders are here to walk you through the construction loan process from start to finish. Share your home goals with us today.