Question:

What is a Construction to Perm loan?

Answer:

A Construction to Perm loan is a refinance obtained at the end of the construction phase that transforms the construction loan to a permanent mortgage. The trick is that the borrower only needs to pay closing costs once.

A lender who issued a separate construction loan will require repayment after one year the longest. A borrower who decides to go for two separate loans - one for construction and one for a permanent mortgage will incur closing costs twice.

A Construction to Perm loan is a financing program which allows the construction loan to be converted to a permanent mortgage after construction reaches certain stage, for example when the Certificate of Occupancy is issued. The construction to perm loan requires that closing costs are paid only once.

Usually, the initial construction loan will carry higher rate - say, 0.5%. You could take even a higher rate construction loan from that lender if they offer a better long term mortgage after the refinance.

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