Construction-To-Permanent Financing Process
Construction-to-Permanent financing or C-to-P financing is typical for homebuyers looking to build a custom home. At On Your Lot Homes, our preferred lenders will guide you step by step through this unique loan product. Here is an overview of the construction-to-permanent financing process and what to expect.
What Is Construction-to-Permanent Financing?
Construction-to-permanent financing is actually several types of construction loans. It may also be referred to as a one-time- or single-close construction loan. In construction-to-permanent financing, borrowers take on a mortgage to finance the construction of a custom home. Later, when the borrower moves into the new custom home, the construction mortgage converts to a permanent loan.
With C-to-P financing, the borrower makes only monthly interest payments on the loan during the home construction process. Once construction is complete, the loan converts to a traditional loan, and the borrower must make monthly principal and interest payments. The permanent mortgage loan is typically an adjustable rate or a 15-year or 30-year fixed mortgage.
Construction-to-Permanent Loan Advantages and Disadvantages
Is C-to-P financing right for your custom home project? Consider the following construction to permanent financing pros and cons:
Pros
A Single Loan
A single loan in the form of construction-to-permanent financing equals less hassle and fewer lenders. C-to-P financing keeps buyers from taking out more than the project budget in loans. Furthermore, the borrower only pays for a single transaction, unlike a traditional construction-only loan, which involves closing a construction loan to open an end loan after the borrower moves into the property.
Interest-only Payments During Construction
Interest-only payments during construction help borrowers lock in the interest rate. With C-to-P financing terms, the borrower typically gets fixed-rate, interest-only payments during the construction phase.
Cons
Loan Approval Process
While the advantages of construction to permanent financing are significant, there are some drawbacks. Unlike the traditional mortgage application, the borrower must submit additional documents to apply for a C-to-P loan, such as the construction plan and the contract with the builder.
Higher Interest Rates and Cost Overruns
Other construction to perm financing drawbacks? Borrowers may face higher interest rates, project cost overruns, and a larger down payment. There may also be costs, such as loan application fees or closing costs, paid upfront.
Construction Documentation Requirements
Your sales representative can provide a broad overview of the program's benefits and help you determine how much buying power you may have. Still, the loan details are best handled by the experts. For example, C-to-P financing involves preparing statements for construction milestone payments (i.e., work completed, inspections, payments rendered on every date, and how much construction work is remaining).
Why Do Borrowers Opt for Construction-to-Permanent Financing?
Construction to permanent financing has many advantages. Construction-to-permanent loan programs allow you to finance your construction and permanent mortgage for your Maryland custom home into one loan. Best of all, you will be able to benefit by locking in the permanent mortgage interest rate on your custom home before the construction starts for added peace of mind against rising rates.
Next Steps: A Guide to OYL for Construction to Permanent Financing
The next steps are to work with OYL to determine your eligibility and desired property. Explore your options with On Your Lot Homes, your local Maryland home building firm. We provide best-in-class services to our clients as the local expert Maryland home builders.
On Your Lot Homes is here to help you with the home building process. For answers to all of your custom home design questions, contact us today at (833) 289-6954 or reach us via email at build@oylhomes.com.
