Building your dream home is full of excitement and many decisions. CFI makes it easy to decide on your loan type with our Construction to Perm option.
What is a Construction/Perm (C/P) Loan?
A Construction/Perm loan, also referred to as a C/P loan, allows for a borrower to purchase a lot/parcel of land or an existing house, and provides an initial Construction period during which the construction or extensive renovation of the house is completed. When the Construction phase has been completed, the loan is modified into a Permanent loan, with a 15 or 30 year amortization period. As a single loan, this product takes the place of a separate construction loan that would otherwise have to be refinanced into a separate end loan.
C/P loans are pretty simple. While the home is being built, Christensen Financial will provide the money to the builder based upon a pre-set draw schedule. The amount and timing of the disbursements are determined by the size and scope of the new construction project and how much work has been completed. During the Construction Period, the borrower or the builder will pay only the accrued interest on the amount that has been advanced (drawn). The borrower does not pay any interest on money that has not been advanced. After the construction is complete, the loan is converted into a permanent loan with regular principal and interest payments.
Benefits of a C/P Loan:
A C/P loan may provide you with the opportunity to design your home, customized to fit your needs, in the location of your choice. It may also provide you with an opportunity to renovate or redesign a home in a great location but in need of updating and customization. Additionally, a C/P loan may allow you to choose a builder of your choice.
How a C/P Loan Works:
A Christensen Financial Loan Officer will discuss the Construction/Perm Loan options and process with you and guide you through the process of applying for a loan and gathering the typical documents needed. The application process is very similar to that of a traditional residential mortgage. The Loan Officer will review your application and help determine the loan amount you could afford and qualify for.
Once you have determined a loan type and loan amount, you can choose your builder and identify the location of where you will build your home. Christensen Financial does not approve your builder or warrant the quality of the builder’s work, but we do review the builder’s track record, licensing and insurance to determine if the builder would be eligible to complete your project based on current industry guidelines.
After the Builder is accepted, and you and the Builder have designed the Plans and Specifications for the home, an appraisal will be performed by a licensed appraiser and will be reviewed along with the Plans and Specifications for your project.
Your loan application package will be reviewed the same way a traditional loan application is reviewed. The loan closing will be scheduled after your loan application is approved. At the closing, if you are purchasing a lot, you will provide the equity for the project (depending on your loan request and the particular loan program parameters). In many cases, your equity may not cover the entire cost of the lot. In this case, Christensen Financial will disburse the remaining balance from the construction loan at closing. Additionally, it is normal to disburse initial amounts so the Builder can begin getting permits, paying impact fees, and initial site work for the project. As the project is completed, Christensen Financial will incrementally make advances against the construction loan based upon the work that has been completed and the draw schedule agreed upon by you, the Builder, and Christensen Financial.
When it is time to make a draw request, you and your builder will submit a certified request. A local inspector will inspect and verify the progress on your home. The inspector does not evaluate the quality of workmanship, but only certifies the amount of work that has been completed. Once the inspector certifies that the specified work has been finalized, Christensen Financial will advance the funds within 24 to 48 hours.
You will receive monthly account statements, beginning the month following your first disbursement. The statement will be for interest accrued on the amount of funds that have been advanced and outstanding during the statement period.
Once the home is completed, a Certificate of Occupancy (C/O) will be issued. After the C/O is issued, a title update will be completed to ensure that the title is clear, and there are no remaining liens. After the title update, we will be able to modify the loan into a permanent loan. You will receive modification loan documents that change the loan into a permanent loan. Once completed, you will begin receiving monthly statements for your regular principal and interest mortgage payment.
Work With an Experienced Lender
Make sure you get the best financing for your needs by working with a lender that specializes in C/P loans. There are a lot of details involved in this transaction, so don't risk using someone new to the loan type. Contact us today to learn more about how a Construction-to-Permanent Loan can help make your home dreams come true!
Find the right builder
There are lots of things to consider when choosing a builder, such as experience level, price point, expertise in your desired home style. To determine if a builder's work is up to your standards try talking to past customers and touring their homes. If you identify any issues, you may want to look for another builder. Remember to ask about warranty, insurance, and licensing (if applicable), and research their reputation with local industry organizations, like the Better Business Bureau or Home Builders Association.
Set a budget and stick to it
Planning your financial strategy for building a new home is no different than considering price ranges on an existing home. Start by finding out how much home you can afford, then work with your designer and builder to design your home around that number. If you already have the design in mind, you may have to be willing to forego expensive features that may be outside of your price range. Once the design and costs have been set, don't deviate from them. Avoid making last minute upgrades or changes to ensure you don't spend more than what you have budgeted.
Get the right type of loan
Construction loans are different from traditional mortgages because they provide funding not only for the purchase of the home but also for the construction of the home. A Construction-to-Permanent loan provides financing for both the home construction and home purchase all-in-one. The alternative is a construction loan that's separate from your mortgage, but you will have to pay two sets of fees, have two closings, and requalify for a new mortgage once the home is built. Contact us to learn more about the benefits of a Construction-to-Permanent loan and determine which option is best for you.