Key Takeaways
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A C-to-P loan combines construction and permanent financing into one loan, saving time and money with only one closing.
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Borrowers make interest-only payments during the construction phase, lowering initial costs.
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C-to-P loans allow borrowers to secure interest rates before construction begins, protecting against market fluctuations.
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These loans may require a higher down payment and more documentation compared to traditional mortgages due to the nature of construction financing.
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If you want to build a new home instead of buying an existing one, you’ll likely need a construction loan. A construction-to-permanent loan (C-to-P), also known as a single-close loan, simplifies financing by combining building costs and a permanent mortgage into one loan—saving you time and money.
What Is a Construction-to-Permanent Loan?
A construction-to-permanent loan allows you to finance your home’s construction and automatically converts into a traditional mortgage once the home is complete. Unlike separate construction and mortgage loans, this option eliminates extra closing costs and streamlines the process.
With a traditional mortgage, you finance a home that’s already built. A C-to-P loan, however, provides funding for land acquisition, construction, and the finished home—all under one loan agreement. If you plan to build a custom home on your chosen lot, this loan offers an efficient financing solution.
How Does a Construction-to-Permanent Work?
The approval process mirrors that of a traditional mortgage, but with additional requirements related to your construction project. Lenders will review your financials, construction plans, contracts, and project timelines before approval.
Unlike conventional mortgages that fund a home purchase in one lump sum, C-to-P’s disburse funds in phases. These installments, called draws, are released at different stages of the building process.
- During construction, borrowers make interest-only payments on the funds already disbursed.
- Once building is complete this converts into a permanent mortgage, and full principal and interest payments begin.
Advantages of a C-to-P Loan
- One Closing, Lower Costs – With a single closing for both the new build and permanent mortgages, borrowers save on closing costs and avoid multiple mortgage applications.
- Locked-in Interest Rates – Borrowers can secure their mortgage rate before work begins, offering protection against market fluctuations.
- Interest-Only Payments During Construction – Until work is complete, borrowers pay only interest on the funds used, reducing initial expenses.
- Flexible Loan Terms – Lenders often provide more customized financing options compared to traditional mortgages.
Disadvantages of a C-to-P Loan
- Higher Down Payment Requirements – Lenders may require 20 percent or more as a down payment due to the increased risk of construction financing.
- Higher Interest Rates – Compared to standard mortgages, C-to-P loans often carry slightly higher interest rates.
- Extensive Documentation – Borrowers must provide detailed building plans, permits, insurance documents, and financial records as part of the approval process.
Is a C-to-P Loan Right for You?
For those who prefer to design and build a new custom home rather than purchase an existing property, a construction-to-permanent loan offers a structured and efficient financing solution. This loan simplifies the transition from construction to homeownership while providing flexibility and cost savings.
Do I Qualify For A Construction Loan?
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FAQ: Construction-to-Permanent Loans
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