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Construction Perm Loan Program

Construction perm loan programs are my specialty. Our lenders make several varieties of construction perm loans available to meet your needs.

     “Two Step” or Prime Based Construction Perm Loan Program

A Prime Rate based construction perm loan program charges you interest only on the funds disbursed at an interest rate equal to the Prime Rate as established from time to time and published in the Wall Street Journal during your construction period (First Step). We have several lenders offering this type of construction perm loan product with construction period pricing ranging from Prime – 1% to Prime + 1% depending on your credit profile, debt ratios, and Loan to Value. These construction period rates are subject to change on a daily basis. It is the rate used to calculate on a daily moving basis, the interest payable on a monthly basis. Since the interest rate during construction is based on the floating Prime Rate, there is no need or opportunity to lock the rate during this period. However, you must choose your permanent mortgage program (Second Step) prior to submission of your loan to underwriting so the loan may be underwritten to the specific parameters of the program you have chosen. The construction period is generally expected not to exceed one year and you will incur additional charges if your construction phase exceeds one year. You may lock your permanent interest rate at any time after your initial loan application but an extended rate lock will require the payment of additional fees for a “hard lock”. You are responsible for direct payment of any real estate taxes directly during construction and you will be required to escrow for taxes if your final LTV (Loan to Value) is greater than 80%. The common maximum LTV is 95% to $417,000; 90% to $650,000; 80% to $750,000; and 75% to $1,000,000 with most lenders although some lenders show flexibility in this area.

    “One Step” or Lock and Build Program

As an alternative to the Prime based programs, we have several lenders offering construction perm loan programs, which offer fixed rates during both the construction and the permanent phases of your loan. These programs have the advantages of eliminating potential increases in the Prime Rate during construction. Another important benefit of these newer programs is to eliminate the need to pay an extended lock fee if rates are rising. However, long term (30 and 15 year fixed) rates are higher than mortgage rates would be if you were purchasing an existing home because the lender is effectively paying for your extended lock cost and is adding the cost to your rate. Some progressive lenders are now offering a flexible program, which gives you a fixed rate during construction and a single rate adjustment at modification. Most of my clients want to put a minimum amount of cash into the transaction and understand that the value of their new home will be greater than the cost to build. Many of these transactions will require Mortgage Insurance when the loan to value is greater than 80% when the loan modifies. As a result, I generally suggest the shortest term ARM available in this situation, as you will probably want to refinance after construction to lower your interest rate and eliminate the mortgage insurance.

In years past, the Prime based programs were the only alternative and remain a good choice if you plan for a substantial down payment. However, many of my clients are now choosing the One Step or ARM based programs given their lower rates and elimination of extended lock costs.

I have written a  newsletter covering them, and a construction perm FAQ is available.

I have a list of documentation needed to process.

There is a new page detailing construction loan fees.

I have detailed information on extended interest rate locks with a float down option. 

I have a page on calculating mortgage qualification ratios.

I have included detailed Frequently Asked Questions and common misconceptions about the process of building your home with a construction/perm loan.

I have also included  information on the specialized areas of log home, modular home, or timber frame home financing

If you are not ready to build but have found the perfect lot. The new Purchase Plus Lot Loan can save you a great deal of money.

New! One of my favorite lenders has finally reopened their lending department. They offer you the ability to modify into the incredibly flexible Cash Flow Loan when your project is complete.

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As a Certified Mortgage Planning Specialist, I offer an analysis of your situation today can make suggestions on how small changes in how your debt is structured today can have a life changing effect in the years to come.  Read more about this free, no obligation service.