Understanding Construction-To-Permanent Loans

Q: Can you recommend a mortgage lender who has experience with the mountain of paperwork involved in a construction-to-permanent loan?
 

A: Most large banks or major national lenders offer construction-to-permanent loans. You should start your search by calling to 5 to 10 of the top local and national lenders in your area. Speak with a loan officer about what you’re looking to do and what type of loan would meet your needs.

Construction-to-permanent loans are desirable because you eliminate the need to have two closings (with all the commensurate fees) if you had a construction loan and then had to find a long-term loan once the property is completed.

That doesn’t mean they’re cheap. Construction-to-permanent financing can be costly, with a slightly higher interest rate.

When you’re putting together the loan program, you should consider whether you want to include an escrow account that will pay out funds to the contractor only when certain benchmarks are met, such as providing signed lien waivers from suppliers. When building a new house, it's always wise to have someone else checking to make sure the paperwork is done, so you don’t have a problem down the line.

Unfortunately, it's the policy of this column and the ThinkGlink.com website not to specifically recommend lenders, attorneys and real estate agents/brokers. But there are plenty of good choices – you just have to do a little legwork to find out which lender, and which program, will work best for your financial situation.

To find a good mortgage lender, I suggest you check out the major banks and mortgage companies in your area. Many savings and loans also provide the construction-to permanent financing you seek. You can also go to JD Power and Associates (JDPower.com) to see who they ranked in at the top of their mortgage lender survey.

And in this situation, where you’ll be working with the lender over a longer-period of time, be sure to think about finding a company that has a reputation for excellent customer service.

One last thing to keep in mind, some lenders will have more paperwork and may require two loan closings: one for the construction loan and one when you have finished the construction and then want the permanent or end loan. However, some lenders have developed a streamlined version that allows you to start out with the lender, keep one loan that automatically converts to an end loan with a simple loan modification document.

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