A construction to permanent mortgage is a three stage mortgage that allows you to finance the construction of your new home. Unlike other types of new construction mortgages, these loans allow you to lock your interest rate and close your loan before construction has even begun. This entails a one time closing with no need to re-qualify for the permanent phase of the project. During construction, disbursement is made to cover the cost to build, and interest is only paid on the outstanding balance. When construction is complete, the loan converts to a permanent mortgage. At that point, scheduled monthly payments of principle and interest plus any escrows, if applicable, will commence.
During the application/decision making stage, you will work with a seasoned mortgage loan originator to review your loan options based on your individual scenario. The loan officer will guide you through the process from start to finish. They will gather the appropriate documentation from you, provide you with disclosures to review and sign, and notify you upon the loan decision.
You can bring your own builder to the table. We recognize this is one of the most important decisions in the home building process and depend on you to select the right builder for your new home project. Lenders always reserve the right to review the builders qualifications and your contract to satisfy our requirements in making the construction permanent loan. The review is not to be considered a recommendation or a representation of the builder’s qualifications or ability to perform under the contract you have signed. Rather the review is completed solely for the benefit of your banks in further consideration of the loan requirements and willingness to proceed with the loan approval process.
An appraisal will be required by a licensed real estate appraiser. After reviewing your plans, specifications and property, the appraiser will search for recent sales of comparable homes in your market to determine an estimated value of your home upon completion.
Draw Schedule and Builder Agreements:
Loan disbursements will be based on work completed as the home is being constructed, and draws will be based on a schedule as agreed between you, your builder and the lender. The builder will be asked to sign the lenders standard construction loan agreement specifying the banks expectations for making funds available during the construction of your new home.
We will work with your selected closing agent to ensure clear title to your property, which is a requirement for your loan to close.
Once the lender has completed the credit approval and the builder and project review is completed the underwriter will issue a final approval and the loan will be ready to close.
The building and disbursement stage coincides with the construction of your home and is typically the longest portion of the Construction Perm loan process. Loan funds are disbursed based on the terms of your construction loan agreement and draw schedule.
Prior to each disbursement, the lender requires an inspection to determine that the work has been properly completed. Funds are then released for payment, as indicated for that specific draw, only after the inspection has been successfully completed.
To order an inspection, you will need to contact your lender who will arrange for a local inspector to inspect the completed work based on the draw schedule. The inspector does not provide opinions regarding quality of workmanship, and will only evaluate the percentage of work completed. If you are concerned about the quality of the workmanship, we recommend that you contact a local inspector to request a quality inspection or discuss your concerns with the local building inspection department.
Draws are typically released within 2-3 business days of receipt of your draw request. Draw funds are deposited into the checking account you have selected during the processing stage or to the title company if state laws require.
You will receive monthly statements beginning the month following your first disbursement. Your statement will reflect the interest that has accrued on the loan funds disbursed through that statement date.
Disbursement Policies are usually structured as follows:
- Borrower funds will always be used first, and then the lender begins disbursing loan proceeds.
- Each construction disbursement is limited to the amount that corresponds to the percentage of completion according to the disbursement schedule.
- Funds are disbursed for labor and material that have been completed or installed.
- No disbursements are permitted if a lien has been filed against the subject property.
Conversion is the final stage of the process. At this point, the construction is complete and your loan is converted from the construction phase to the permanent phase.
Costs Due from you at conversion include the following:
- Initial escrow of pre-paid items, such as homeowners insurance and real estate taxes if applicable.
- Prepaid interest for the permanent phase.
- Unpaid construction phase interest.
- Additional title insurance fees, if required.
Please be sure to speak with your loan officer about any fees that will be due in advance of your conversion.
Conversion completes the Construction Permanent loan process. Your permanent mortgage will then be sent to the banks loan servicing team. You can then begin your regular mortgage payments as structured for your permanent loan.
All Construction Permanent loan products are not alike. You need to ask the loan officers about what sets their products apart and why their product is best for your needs.
Ready To Build a Home?
Find out more about physician home construction loan process by submitting the attached form. A loan officer will reply within 24 hours.