Construction line of credit helps home builders construct properties

You can take out a construction to permanent loan in order to construct a property. Such loans are actually construction line of credit that the home builders can take out to construct a property and sell it off when it is built. After buying the property, the new homeowner can refinance the existing mortgage loan with a new one. Go through this article to acquire knowledge on construction to permanent loans.

Types of construction to permanent loans

There are usually 2 types of construction to permanent loans that the home builders can take out to construct properties. These 2 types of loans are given below.

• One-time close construction loan – In this type of loan, the closing takes place only once for both the construction loan as well as the permanent one. The borrower has to pay the closing cost only once in this type of loan.

• Two-time close construction loan – Contrary to the previous one, the closing takes place two times in case of a two-time close construction loan. There are actually two separate loans with two sets of closing costs. However, these types of loans are more flexible.

Construction to permanent loan – How it works

The loan actually takes the form of a construction line of credit as you, a home builder, can take out the required amount with the progress in the construction. What happens is, a percent of the construction phase is completed and an invoice is submitted to the lender on the basis of which the lender makes payments. In case of a construction to permanent loan, the loan is usually interest-only during the construction phase. However, the home builders can defer payment until the loan is converted into a permanent mortgage. Usually, the builders do so in order to save the money for the construction phase as it is quite difficult to assume the exact amount required to construct a property.

After the end of the construction phase, the mortgage loan gets transferred to a permanent loan. It actually gets converted from a line of credit to a permanent home loan with a definite amortization period. It is said to be the end of the construction phase when the property receives a certificate of occupancy from the municipal building authority.

When a construction to permanent loan gets converted into a permanent one, the principal is actually the sum total of the overall construction cost, along with the unpaid closing cost and any unpaid interest during the construction phase.