CONSTRUCTION-TO-PERMANENT FINANCING
One Financing Structure From Construction Through Your Permanent Mortgage
Building a home involves two distinct stages: financing the construction and financing the completed home.
A construction-to-permanent loan combines those stages within one financing structure. Rather than obtaining a construction loan and then arranging a separate mortgage when the home is finished, qualified borrowers may be able to finance the construction and transition into permanent mortgage financing through a single loan.
Construction-to-permanent loans are sometimes referred to as one-time-close construction loans because the financing may be established with one closing before construction begins.
Platinum Lending Solutions helps borrowers throughout Oregon and Washington evaluate construction-to-permanent financing and compare the available structures before committing to a construction project.
What Is a Construction-to-Permanent Loan?
A construction-to-permanent loan is designed to finance the construction of a home and provide the permanent mortgage financing once construction is complete.
During construction, funds are generally released in stages as designated portions of the project are completed.
Once construction is finished and applicable completion requirements have been satisfied, the financing transitions into its permanent mortgage phase according to the terms of the loan program.
This differs from construction-only financing, where the borrower may need to obtain a separate mortgage after the home has been completed.
How Does a Construction-to-Permanent Loan Work?
Although the exact process varies by lender and loan program, construction-to-permanent financing generally involves several stages.
01
Financing and Project Approval
Before closing, the lender evaluates both the borrower and the proposed construction project.
This may include review of:
• Income, assets, credit, and existing obligations
• Available funds and applicable reserve requirements
• Land or building site
• Builder or general contractor
• Plans and specifications
• Construction contract
• Detailed project budget
• Construction timeline
• Expected completed value
Because the financing is being established before the home is complete, both the borrower and the project must satisfy applicable program requirements.
02
Closing
Once the financing and project have been approved, the loan closes before construction begins.
Depending on the program, the financing may include land that is already owned, the acquisition of land, eligible construction costs, and the permanent mortgage.
03
Construction and Draws
Construction funds are generally not released all at once.
Instead, funds are commonly distributed through a series of draws as designated stages of construction are completed and applicable lender requirements are satisfied.
Inspections or other documentation may be required before funds are released.
04
Construction Completion
When construction is complete, the lender may require documentation confirming that the home has been completed according to applicable plans, specifications, and loan requirements.
The specific completion requirements vary by lender and program.
05
Permanent Financing
After the construction phase has been successfully completed, the loan transitions into the permanent mortgage phase according to the terms established by the applicable financing program.
The borrower then makes payments under the permanent mortgage structure.
One-Time-Close vs. Two-Time-Close Construction Financing
One of the most important decisions when financing a custom home is whether the construction and permanent financing will be completed together or separately.
One-Time-Close Construction Financing
A construction-to-permanent loan may allow the borrower to complete one closing that establishes both the construction financing and permanent mortgage.
This can reduce the need to arrange an entirely new mortgage transaction after the home is completed.
Two-Time-Close Construction Financing
With a construction-only structure, the initial loan finances the construction phase.
Once construction is complete, the borrower generally obtains separate permanent mortgage financing, creating a second financing transaction and potentially a second closing.
Neither structure is automatically better for every borrower.
The appropriate approach depends on the available programs, project, borrower qualifications, rate structure, costs, timing, and longer-term mortgage strategy.
Potential Benefits of Construction-to-Permanent Financing
For the right borrower and project, combining construction and permanent financing may offer several advantages.
One Financing Process
Rather than arranging construction financing and then starting a separate permanent mortgage process, the overall financing may be established at the beginning of the project.
Potentially One Closing
A one-time-close structure may eliminate the need for a second mortgage closing after construction.
Fewer Unknowns at Completion
Establishing the permanent financing structure before construction begins may provide greater clarity about what happens when the home is finished.
Coordinated Construction and Mortgage Financing
The construction phase and permanent mortgage are designed to work together rather than being arranged as unrelated transactions.
However, the complete terms of the financing should be compared carefully. Convenience alone should not determine which construction structure is appropriate.
What Should You Compare Between Programs?
Construction-to-permanent programs can vary significantly between lenders.
When evaluating options, it is important to look beyond whether a program offers a single closing.
Depending on the available financing, considerations may include:
• Down payment or equity requirements
• Treatment of land equity
• Reserve requirements
• Builder approval requirements
• Construction term
• Draw procedures
• Eligible construction costs
• Loan amount limitations
• Appraisal requirements
• Interest-rate structure
• Rate-lock provisions
• Permanent mortgage terms
• Closing costs and fees
The best structure is the one that makes sense for both the construction project and your longer-term financing goals.
Can You Use Land You Already Own?
Potentially.
If you already own the property where the home will be built, the land and any available equity may be considered when structuring certain construction-to-permanent loans.
The lender will generally evaluate the land, its value, and any existing liens.
How land equity is treated depends on the specific loan program and transaction.
For borrowers who already own their building site, evaluating the land early can help establish a more accurate picture of the overall financing requirements.
Can You Buy the Land and Build With the Same Loan?
Some construction financing programs may allow qualified borrowers to acquire the land and finance construction within the same overall transaction.
Whether this is available depends on the loan program, property, project, borrower qualifications, and other applicable requirements.
If you have identified land but have not purchased it yet, reviewing the financing before completing the land acquisition can help determine whether the proposed transaction works with the construction program you are considering. Borrowers who are also comparing financing for an existing home can explore our broader home purchase loan options.
How Do Construction Draws Work?
During the construction phase, funds are typically released according to a draw schedule rather than being fully distributed at closing.
As construction reaches designated stages, a draw may be requested.
Depending on the program, the lender may require an inspection or other documentation confirming that the applicable work has been completed before releasing additional funds.
Because draw procedures affect the builder as well as the borrower, understanding the process before construction begins is important.
Builder Approval and Project Requirements
Construction-to-permanent financing requires the lender to evaluate more than the borrower.
Many programs also have requirements for the builder or general contractor and the proposed project.
The lender may require documentation relating to the builder, construction contract, plans and specifications, budget, timeline, and other aspects of the project.
Builder approval should be addressed early.
Selecting a builder before understanding the lender’s requirements can create complications if that builder does not meet the requirements of the construction program ultimately selected.
What About the Interest Rate?
Interest-rate structures and rate-lock provisions can vary considerably between construction-to-permanent programs.
Depending on the financing structure, there may be specific provisions governing the construction period, permanent mortgage, and when or how the permanent rate is established.
Because construction can take many months, the rate structure deserves particular attention when comparing programs.
The lowest initial rate or most convenient closing structure may not necessarily produce the best overall financing outcome.
Is Construction-to-Permanent Financing Right for You?
Construction-to-permanent financing may be worth considering if you are:
• Building a custom home
• Building on land you already own
• Purchasing land as part of a construction project
• Looking for a financing structure that continues beyond construction
• Interested in potentially completing the construction and permanent financing with one closing
Whether it is the appropriate option depends on the details of your project and financial situation.
In some circumstances, separate construction and permanent financing may provide advantages. In others, the simplicity and continuity of a construction-to-permanent structure may be preferable.
The two approaches should be compared before deciding how to finance the project.
Start With Financing Before You Finalize the Project
Construction financing is easier to evaluate before all of the project decisions have been finalized.
Reviewing your options early can help establish:
• A realistic financing range
• Potential down payment or equity requirements
• How existing land may be treated
• Builder requirements
• Reserve requirements
• Construction draw procedures
• Permanent financing options
• Potential rate and lock considerations
It may also identify potential financing limitations before you purchase land, finalize plans, sign a construction contract, or commit substantial funds to the project.
If you are still evaluating the broader financing process for building a home, learn more about our new construction loan options in Oregon and Washington.
Construction-to-Permanent Loans in Oregon & Washington
Construction projects vary based on the property, location, land, builder, project scope, construction costs, and financing requirements.
As an independent mortgage brokerage serving Oregon and Washington, Platinum Lending Solutions can evaluate construction-to-permanent financing through multiple lending sources rather than limiting borrowers to the construction program offered by a single lender.
We can help you compare available structures, understand how the construction and permanent phases work together, and determine which financing approach may align with your project and longer-term mortgage goals.
Planning to Build a Home?
The construction loan is only one part of the financing decision. How that loan transitions into your long-term mortgage can be equally important.
Platinum Lending Solutions can help you compare construction-to-permanent financing with other mortgage loan options and understand the requirements before you commit to the project.
Have Questions About Your Construction-to-Permanent Loan Options?
Tell us a little about your land, builder, proposed home, and construction plans. We can help you evaluate the available financing structures and determine what steps to consider next.
Construction-to-Permanent Loan FAQs
Is a construction-to-permanent loan the same as a one-time-close loan?
The terms are often used together. A construction-to-permanent structure generally combines construction financing and the permanent mortgage within one loan structure and may allow the financing to be completed with a single closing.
Do I have to own the land already?
Not necessarily. Depending on the program, construction financing may be available for land you already own or may allow qualified borrowers to purchase land as part of the transaction.
Can my land equity help with the financing?
Potentially. Existing land value and equity may be considered when structuring certain construction loans. Treatment of land equity varies by program.
Do I make payments while my home is being built?
Payment requirements during construction depend on the specific loan program and financing structure. These terms should be reviewed as part of the loan comparison before closing.
Does the builder have to be approved?
Many construction programs have specific requirements for builders or general contractors. Builder approval should be addressed early in the process.
How are construction funds released?
Funds are generally released through a draw process as designated stages of construction are completed and applicable lender requirements are satisfied.
Do I have to qualify again when construction is finished?
One of the reasons borrowers may consider construction-to-permanent financing is that the construction and permanent financing are established within the same overall loan structure. However, completion and conversion requirements vary by program and should be reviewed before closing.
Can I lock the permanent mortgage rate before my home is finished?
Possibly. Rate-lock options vary by lender and construction loan structure. Because the construction period can be lengthy, rate and lock provisions are important factors to compare when evaluating programs.
