A construction-to-perm loan funds building with periodic draws, typically charging interest-only payments during construction and converting to a permanent mortgage at completion. Rates may float (tied to prime or SOFR) or be fixed; lenders differ on lock timing, draw inspections, escrow requirements, and allowable construction timelines. Compare single-close and two-close options and review draw schedules, contingency reserves, and underwriting requirements with multiple lenders.

What a construction-to-perm loan is

A construction-to-permanent (construction-to-perm) loan combines short-term construction financing with a long-term mortgage. Lenders advance funds in draws during building, and when construction finishes the loan converts to the permanent mortgage. This avoids a separate refinance closing in many cases.

How rates usually work

Lenders price the construction phase either as a floating rate (often tied to a market benchmark such as the prime rate or SOFR) or as a fixed rate for both construction and permanent periods. During construction you commonly make interest-only payments on the amount drawn. The permanent portion typically converts to a fully amortizing mortgage with the fixed or locked rate you agreed to.

Many lenders now reference SOFR after the LIBOR transition, but some still use the published prime rate (for example, the Wall Street Journal prime) plus a lender spread. The specific benchmark and spreads depend on each lender and your credit profile.

Single-close vs two-close

  • Single-close (one close): The loan originates as a construction loan and automatically converts to the permanent mortgage at completion. This is convenient and saves a second closing.
  • Two-close: You take a short-term construction loan, complete construction, then apply for a separate permanent mortgage. Two-close may let you shop for a better permanent rate but adds closing costs.

Typical borrower requirements and process

Lenders underwrite construction-to-perm loans on the borrower and the project. Expect to provide detailed plans, a licensed contractor's contract, a construction budget, permits, and insurance. The lender will schedule inspections and release draws as work milestones are met. Credit score, debt-to-income ratios, and the contractor's experience all affect pricing and approval.

Loan term, draws, escrow, and payments

  • Construction timelines are often planned for 6-12 months, though actual maximums vary by lender and project type. 1
  • During construction you typically pay interest only on funds disbursed; permanent payments begin after conversion.
  • Lenders usually require escrow for property taxes and hazard insurance once the loan converts to a permanent mortgage; some require escrow earlier depending on LTV and lender policy. 2

What to watch for

  • Ask whether the permanent rate is locked at application or at conversion and whether a lock fee applies.
  • Confirm draw schedule, inspection process, contingency reserves, and exactly what happens if construction overruns the planned timeline.
  • Compare single-close versus two-close costs and risks for your situation.
Construction-to-perm financing simplifies moving from building to occupancy, but programs and underwriting rules vary widely. Speak with multiple lenders and a mortgage professional who understands construction loans to match the product to your project.
  1. Confirm common benchmark usage (SOFR vs Prime) and typical lender pricing practices for construction-to-perm loans.
  2. Verify typical maximum planned construction timelines lenders will accept before charging additional fees or requiring loan modifications (commonly 12 months but varies).
  3. Verify common lender escrow triggers related to LTV or loan phase for property taxes and hazard insurance.

FAQs about Construction Perm Loans

What is the difference between a single-close and a two-close construction loan?
A single-close loan rolls automatically into the permanent mortgage after construction, avoiding a second closing. A two-close uses a separate construction loan first, then you obtain a separate permanent mortgage after completion; this can let you shop rates but adds a second closing and extra costs.
Do I make full mortgage payments during construction?
No. During construction you typically make interest-only payments on the amount disbursed. Full amortizing mortgage payments begin after the loan converts to the permanent mortgage.
Can I lock the permanent interest rate during construction?
Some lenders allow you to lock the permanent rate at application or at a defined conversion point; others lock only at conversion or offer a rate float-down feature. Locks may carry fees. Confirm the lender's policy before you sign.
Will I need to escrow taxes and insurance during construction?
Policies vary. Many lenders require escrow for taxes and hazard insurance once the loan converts to permanent; some require escrow earlier depending on loan-to-value and lender rules. Confirm escrow timing with the lender.
What documents does a lender typically require for approval?
Expect to submit construction plans and specifications, a signed contractor agreement, a construction budget, permits, proof of contractor licensing and insurance, and personal financial documentation (income, credit, assets). Lenders will also schedule periodic inspections tied to disbursement draws.

News about Construction Perm Loans

Churchill Stateside Group Provides $9,000,000 Construction Loan and $2,300,000 Forward Permanent Loan Commitment for Wisdom Woods Apartments in Peachtree City, Georgia - Business Wire [Visit Site | Read More]

Best Construction Loan Lenders In 2026 - Bankrate [Visit Site | Read More]

Commercial Construction Loans: Where to Get One - NerdWallet [Visit Site | Read More]

Housing Inside Out: New State Loan Boosts Accessory Dwelling Unit Construction - CapeNews.net [Visit Site | Read More]

Churchill Stateside Group Provides $11,075,000 in USDA-RD Option 3 Construction Advance Loans and $15,500,000 Equity Bridge Loan for 13-Property Rural Apartment Portfolio in Georgia - Business Wire [Visit Site | Read More]

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