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 the building phase and the long-term mortgage in one loan structure. Qualified borrowers may be able to finance construction and move into the permanent mortgage when the home is finished. This can avoid arranging a separate mortgage after construction.
Construction-to-permanent loans are sometimes called one-time-close loans. The financing may be set up at one closing before building begins.
Platinum Lending Solutions helps borrowers in Oregon and Washington compare these loans. Review your options before you commit to a building project.
What Is a Construction-to-Permanent Loan?
This loan funds the building of a home and provides its long-term mortgage after construction.
During construction, funds are generally released in stages as designated portions of the project are completed.
The loan moves into its permanent phase after the home is finished and the lender’s completion rules are met. The loan program sets the terms for this change.
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, the lender commonly releases funds in stages, called draws. Each draw depends on completed work and the lender’s requirements.
Inspections or other documentation may be required before funds are released.
04
Construction Completion
The lender may require proof that the finished home meets the plans, specifications and loan rules.
The specific completion requirements vary by lender and program.
05
Permanent Financing
After construction and the required completion review, the loan moves into its permanent phase. The program’s terms govern this step.
The borrower then makes payments under the permanent mortgage structure.
One-Time-Close vs. Two-Time-Close Construction Financing
Decide whether to arrange the construction loan and permanent mortgage together or separately. Compare the terms of both approaches.
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 appropriate structure depends on the construction project, borrower qualifications, available programs, and 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.
Before you buy land, review how it fits the construction loan you are considering. An early review may help you spot financing limits. 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.
Before releasing more funds, the lender may require an inspection or other proof of completed work. The rules depend on the program.
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.
Check the lender’s builder rules before making your choice. A builder who does not meet those rules may delay or limit your financing options.
What About the Interest Rate?
Interest-rate structures and rate-lock provisions can vary considerably between construction-to-permanent programs.
Review the rate terms for both the building phase and permanent mortgage. Ask when and how the permanent rate is set. These terms depend on the loan structure.
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 right 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, Platinum Lending Solutions can compare construction-to-permanent programs from multiple lenders. We serve Oregon and Washington.
We can help you compare the options and understand both loan phases. Together, we review how the terms fit your project and long-term 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.
