{"id":24292,"date":"2026-04-23T19:20:42","date_gmt":"2026-04-23T19:20:42","guid":{"rendered":"https:\/\/incredipros.com\/?p=24292"},"modified":"2026-04-23T19:20:43","modified_gmt":"2026-04-23T19:20:43","slug":"what-is-a-construction-to-permanent-loan","status":"publish","type":"post","link":"https:\/\/incredipros.com\/?p=24292","title":{"rendered":"What Is A Construction-To-Permanent Loan?"},"content":{"rendered":"<div id=\"\">\n<div class=\"overflow-hidden relative bg-blue-50 aspect-video w-full rounded-lg\"><\/div>\n<p>\n            Image by mbogacz\/GettyImages\/Illustration by Hunter Newton\/Bankrate\n        <\/p>\n<\/p><\/div>\n<div>\n<div id=\"block_7f3a6fec5c42dd33065c5bc1fcda1340\" class=\"key-takeaways sm:border-l-4 border-(--accent) sm:pl-8 my-8 relative\" style=\"--accent: var(--color-blue-medium)\">\n    <!-- htmlmin:ignore --><\/p>\n<h2 class=\"heading-4 mt-0 mb-4 text-crop-none max-sm:flex max-sm:items-center max-sm:gap-4\" id=\"key-takeaways\" data-position=\"0\" data-beam-element-viewed=\"\" data-id=\"br-h2-0-onpage-placement\" data-type=\"h2\" data-location=\"Editorial\" data-name=\"h2_all\" data-text=\"Key takeaways\" data-outcome=\"\">\n    <span class=\"shrink-0\">Key takeaways<\/span><br \/>\n        <span class=\"max-sm:h-0.5 max-sm:w-full max-sm:w-full max-sm:bg-(--accent) max-sm:rounded-full max-sm:block\"\/><br \/>\n    <\/h2>\n<p>    <!-- htmlmin:ignore --><\/p>\n<ul class=\"flex flex-col text-gray-700 mb-0 gap-2 list-disc\">\n<li class=\"pl-4 relative marker:text-(--accent)\">\n                                                            A construction-to-permanent loan finances the construction of a house and converts to a mortgage on completion.\n                                                <\/li>\n<li class=\"pl-4 relative marker:text-(--accent)\">\n                                                            Construction-to-permanent loans require only one round of closing costs. They also require a down payment.\n                                                <\/li>\n<li class=\"pl-4 relative marker:text-(--accent)\">\n                                                            With a construction-to-permanent loan, you can draw funds at specific phases of construction, up to a certain loan amount.\n                                                <\/li>\n<\/ul>\n<\/div>\n<h2 id=\"what-is\" data-position=\"1\" data-beam-element-viewed=\"\" data-id=\"br-h2-1-onpage-placement\" data-type=\"h2\" data-location=\"Editorial\" data-name=\"h2_all\" data-text=\"What is a construction-to-permanent loan?\" data-outcome=\"\">What is a construction-to-permanent loan?<\/h2>\n<p>A construction-to-permanent loan \u2014 also known as a one-time close (OTC) or a single-close loan \u2014 is a loan that finances a new-construction home. Once the home is built, the loan converts into a traditional mortgage, usually with a 15- or 30-year term.<\/p>\n<p>A construction-to-permanent loan saves you time and money by streamlining the construction financing and the mortgage. You won\u2019t have to pay two sets of closing costs or close on two separate loans.<\/p>\n<h3 id=\"how-it-works\">How does a construction-to-permanent loan work?<\/h3>\n<p>Construction-to-permanent loans function in two phases: construction and post-construction. During the construction phase, the lender authorizes payments, or draws, to cover the cost of land, materials, labor, permits and other expenses. The lender works closely with an inspector to ensure that any work completed matches draw requests.\u00a0<\/p>\n<p>The construction phase typically lasts about one year, but it can vary depending on your lender, permitting, scheduling and the project\u2019s size. During this time, you might only need to make interest payments. Once construction is completed, the loan converts into a traditional mortgage, and you\u2019ll start repaying the mortgage principal and interest.<\/p>\n<h3>Construction-to-permanent vs. construction-only loans<\/h3>\n<p>In contrast to construction-to-permanent loans, you could choose a construction-only loan. These loans also cover costs related to land, labor, materials and permits, but they don\u2019t convert into a mortgage once the home is complete. Instead, you\u2019ll shop for a new mortgage and repay the construction loan, either with cash or your mortgage funds. You\u2019ll pay two sets of closing costs.<\/p>\n<p>You might choose the construction-only route if you plan to sell the home after building or if your preferred construction lender doesn\u2019t offer a conversion option.<\/p>\n<h3>Construction-to-permanent loan example<\/h3>\n<p>Imagine you decide to build a new home. You want to purchase a parcel of land that costs $50,000, and you estimate that the house will cost $350,000 to build. In total, you would need $400,000 of financing.<\/p>\n<p>Construction-to-permanent loans typically require a 20 percent down payment, which would be $80,000 in this case, and leave you with a $320,000 loan. To borrow $320,000 over a 30-year period with a 7 percent interest rate, your monthly principal and interest payment would be about $2,129. However, you might be able to pay only interest during the construction phase.<\/p>\n<h2 id=\"eligibility-requirements\" data-position=\"2\" data-beam-element-viewed=\"\" data-id=\"br-h2-2-onpage-placement\" data-type=\"h2\" data-location=\"Editorial\" data-name=\"h2_all\" data-text=\"Construction-to-permanent loan eligibility requirements\" data-outcome=\"\">Construction-to-permanent loan eligibility requirements<\/h2>\n<p>Since there\u2019s substantial risk involved with building a home, lenders typically have more stringent requirements for construction-to-permanent loans. Conventional construction-to-permanent loans can have fewer restrictions than government-backed loans, however. Here are the typical requirements:<\/p>\n<ul class=\"wp-block-list\">\n<li>\n<strong><u>Down payment<\/u><\/strong>: 20 percent (but could be as low as 5%)<\/li>\n<li>\n<strong><u>Credit score<\/u><\/strong>: 680<\/li>\n<li>\n<strong><u>Debt-to-income (DTI) ratio<\/u><\/strong>: 45 percent or below <\/li>\n<li>\n<strong>An estimated appraisal<\/strong>: An appraiser will need to determine the home\u2019s estimated completed value.<\/li>\n<li>\n<strong>Project approval<\/strong>: The lender needs to approve your budgets, schedule, blueprints and more.<\/li>\n<li>\n<strong>Architect and contractor approval<\/strong>: You\u2019ll need to hire licensed, professional builders and submit copies of their licenses, certificates and\/or resumes to your lender.<\/li>\n<\/ul>\n<h2 id=\"pros-v-cons\" data-position=\"3\" data-beam-element-viewed=\"\" data-id=\"br-h2-3-onpage-placement\" data-type=\"h2\" data-location=\"Editorial\" data-name=\"h2_all\" data-text=\"Pros and cons of construction-to-permanent loans\" data-outcome=\"\">Pros and cons of construction-to-permanent loans<\/h2>\n<p>Construction-to-permanent loans have benefits as well as drawbacks. Here are the major ones to consider.<\/p>\n<div id=\"block_fc265d9ad88dbf90d964fab2d8581666\" class=\"flex flex-col gap-8 my-6 not-wysiwyg\">\n<div class=\"ProsAndConsList\" data-js-selector=\"ProsAndConsList\">\n<div class=\"ProsAndConsItem\">\n        <!-- htmlmin:ignore --><\/p>\n<h3 class=\"ProsAndConsItem-header\">\n    Pros<br \/>\n    <\/h3>\n<p>    <!-- htmlmin:ignore --><\/p>\n<ul class=\"ProsAndConsItem-list\">\n<li>\n                    <strong>Single approval process:<\/strong> Qualify once instead of twice, saving time and reducing uncertainty.\n                <\/li>\n<li>\n                    <strong>One closing:<\/strong> Combines construction loan and mortgage, reducing closing costs.\n                <\/li>\n<li>\n                    <strong>Draw funds as needed:<\/strong> Construction-to-permanent loans pay out to builders as the project progresses.\n                <\/li>\n<li>\n                    <strong>Interest-only payments during construction:<\/strong> Many construction-to-permanent loans require only interest payments during construction.\n                <\/li>\n<\/ul><\/div>\n<div class=\"ProsAndConsItem\">\n        <!-- htmlmin:ignore --><\/p>\n<h3 class=\"ProsAndConsItem-header\">\n    Cons<br \/>\n    <\/h3>\n<p>    <!-- htmlmin:ignore --><\/p>\n<ul class=\"ProsAndConsItem-list\">\n<li>\n                    <strong>Larger down payment:<\/strong> Lenders may require more upfront since the home isn\u2019t built yet.\n                <\/li>\n<li>\n                    <strong>Risk of cost overruns:<\/strong> If building expenses exceed the loan amount (which is common), you\u2019ll be required to cover the difference.\n                <\/li>\n<li>\n                    <strong>Higher interest rates:<\/strong> Rates may be higher than traditional mortgages, especially during the construction period.\n                <\/li>\n<li>\n                    <strong>Stricter requirements and deadlines:<\/strong> Detailed plans, approved builders and firm construction timelines are required.\n                <\/li>\n<\/ul><\/div>\n<\/div><\/div>\n<h2 id=\"how-to-apply\" data-position=\"4\" data-beam-element-viewed=\"\" data-id=\"br-h2-4-onpage-placement\" data-type=\"h2\" data-location=\"Editorial\" data-name=\"h2_all\" data-text=\"How to apply for a construction-to-permanent loan\" data-outcome=\"\">How to apply for a construction-to-permanent loan<\/h2>\n<p>Many lenders offer construction-to-permanent loans, but you\u2019ll most often find them at a bank or with a lender specializing in construction financing. Applying involves more steps than applying for a standard mortgage.<\/p>\n<p>Here\u2019s what you\u2019ll need to do to get started:<\/p>\n<ol class=\"wp-block-list\">\n<li>\n<strong>Get preapproved<\/strong>: Like with other types of mortgages, it\u2019s a good idea to get <u>preapproved<\/u> for a construction-to-permanent loan. Getting preapproved will tell you how much funding you can get based on factors like your credit score and DTI ratio.<\/li>\n<li>\n<strong>Find a builder and an architect<\/strong>: Research potential builders and architects, read up on their reputations and ask for references. Then set a budget and a timeline and finalize the home\u2019s design.<\/li>\n<li>\n<strong>Get a lender<\/strong>: Consider at least three offers from different lenders, comparing their rates and their experience funding construction-to-permanent loans. Read <u>consumer reviews<\/u> of each lender as well. Once you decide on one, you\u2019ll need to <u>apply for the loan<\/u>, submitting paperwork on income, assets, debts and more.<\/li>\n<li>\n<strong>Buy insurance<\/strong>: Your lender may require you to <u>buy builder\u2019s risk insurance<\/u> or new construction insurance to cover the home while it\u2019s being built.<\/li>\n<\/ol>\n<h2 id=\"faq\" data-position=\"5\" data-beam-element-viewed=\"\" data-id=\"br-h2-5-onpage-placement\" data-type=\"h2\" data-location=\"Editorial\" data-name=\"h2_all\" data-text=\"Frequently asked questions\" data-outcome=\"\">Frequently asked questions<\/h2>\n<ul class=\"Accordion w-full align\">\n<li x-id=\"['panel-accordion-item-0', 'heading-accordion-item-0']\" x-data=\"{ expanded: 0 }\" class=\"Accordion-item\">\n<button class=\"Accordion-titleContainer py-4 px-3 sm:px-6 group sm:py-6\" type=\"button\" :id=\"$id('heading-accordion-item-0')\" :aria-controls=\"$id('panel-accordion-item-0')\" :aria-expanded=\"expanded ? true : false\" x-on:click=\"expanded = !expanded\" :data-outcome=\"expanded ? 'open_accordion' : 'close_accordion'\"><!-- htmlmin:ignore --><\/p>\n<h3 class=\"Accordion-title my-0 mr-2 md:flex-1\">\n    What are alternatives to construction-to-permanent loans?<br \/>\n    <\/h3>\n<p><!-- htmlmin:ignore --><span class=\"Accordion-icon Icon mb-0 block leading-none Icon--sm icon-base-blue-600\" aria-hidden=\"true\"><svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"Icon-glyph\" viewbox=\"0 0 24 24\" fill=\"currentColor\" focusable=\"false\"><title>Caret Down Icon<\/title>\n<path d=\"M12 17.152c-.33 0-.675-.131-.94-.378L3.384 9.09a1.32 1.32 0 0 1 0-1.86c.51-.51 1.351-.51 1.862 0L12 13.977l6.755-6.747c.51-.51 1.351-.51 1.862 0 .51.51.51 1.35 0 1.86l-7.694 7.684a1.295 1.295 0 0 1-.94.378H12Z\" class=\"icon-base\"\/><\/svg><\/span><\/button><\/p>\n<div class=\"Accordion-contentWrapper\" :id=\"$id('panel-accordion-item-0')\" :aria-labelledby=\"$id('heading-accordion-item-0')\" x-show=\"expanded\" x-collapse=\"\" role=\"region\" style=\"height: 0; overflow: hidden; display: none;\">\n<div class=\"Accordion-content text-gray-700 px-3 pb-4 sm:px-6 sm:pb-6\">\n<p>Alternatives to construction-to-permanent loans include:<\/p>\n<p><strong>FHA construction loans<\/strong>: For as little as 3.5 percent down, you can get a construction loan insured by the Federal Housing Administration (FHA). These come in the form of a construction-to-permanent loan and a 203(k) loan, which is a renovation loan you can use to rehab an existing home.<\/p>\n<p><strong>VA construction loans<\/strong>: For eligible veterans, members of the armed services and their surviving spouses, construction loans guaranteed by the Department of Veterans Affairs (VA) allow you to build a home with no down payment required.<\/p>\n<p><strong>Home equity line of credit (HELOC)<\/strong><strong>:<\/strong> If you already own a house, you can tap into your home equity with a HELOC. With enough equity, you could use a HELOC to fund another home\u2019s construction. However, keep in mind you\u2019ll need to use your home as collateral and pay out of pocket for any construction costs not covered by the HELOC.<\/p>\n<p><strong>Cash-out refinance<\/strong><strong>:<\/strong> Similar to a HELOC, a cash-out refinance will let you tap your home equity to construct another home. Unlike a HELOC, it replaces your current mortgage with a new mortgage for a new amount and new rate.<\/p>\n<\/div>\n<\/div>\n<\/li>\n<li x-id=\"['panel-accordion-item-1', 'heading-accordion-item-1']\" x-data=\"{ expanded: 0 }\" class=\"Accordion-item\">\n<button class=\"Accordion-titleContainer py-4 px-3 sm:px-6 group sm:py-6\" type=\"button\" :id=\"$id('heading-accordion-item-1')\" :aria-controls=\"$id('panel-accordion-item-1')\" :aria-expanded=\"expanded ? true : false\" x-on:click=\"expanded = !expanded\" :data-outcome=\"expanded ? 'open_accordion' : 'close_accordion'\"><!-- htmlmin:ignore --><\/p>\n<h3 class=\"Accordion-title my-0 mr-2 md:flex-1\">\n    How does the disbursement of funds work during the construction phase of a construction-to-permanent loan?<br \/>\n    <\/h3>\n<p><!-- htmlmin:ignore --><span class=\"Accordion-icon Icon mb-0 block leading-none Icon--sm icon-base-blue-600\" aria-hidden=\"true\"><svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"Icon-glyph\" viewbox=\"0 0 24 24\" fill=\"currentColor\" focusable=\"false\"><title>Caret Down Icon<\/title>\n<path d=\"M12 17.152c-.33 0-.675-.131-.94-.378L3.384 9.09a1.32 1.32 0 0 1 0-1.86c.51-.51 1.351-.51 1.862 0L12 13.977l6.755-6.747c.51-.51 1.351-.51 1.862 0 .51.51.51 1.35 0 1.86l-7.694 7.684a1.295 1.295 0 0 1-.94.378H12Z\" class=\"icon-base\"\/><\/svg><\/span><\/button><\/p>\n<div class=\"Accordion-contentWrapper\" :id=\"$id('panel-accordion-item-1')\" :aria-labelledby=\"$id('heading-accordion-item-1')\" x-show=\"expanded\" x-collapse=\"\" role=\"region\" style=\"height: 0; overflow: hidden; display: none;\">\n<p>\n            The lender pays the builder in disbursements that are called \u201cdraws.\u201d The lender and builder agree upon a draw schedule for these payments, and before making the payments, the lender works with an inspector to see that the agreed-upon work has been done.\n        <\/p>\n<\/div>\n<\/li>\n<li x-id=\"['panel-accordion-item-2', 'heading-accordion-item-2']\" x-data=\"{ expanded: 0 }\" class=\"Accordion-item\">\n<button class=\"Accordion-titleContainer py-4 px-3 sm:px-6 group sm:py-6\" type=\"button\" :id=\"$id('heading-accordion-item-2')\" :aria-controls=\"$id('panel-accordion-item-2')\" :aria-expanded=\"expanded ? true : false\" x-on:click=\"expanded = !expanded\" :data-outcome=\"expanded ? 'open_accordion' : 'close_accordion'\"><!-- htmlmin:ignore --><\/p>\n<h3 class=\"Accordion-title my-0 mr-2 md:flex-1\">\n    Can I use a construction-to-permanent loan for major renovations or additions to an existing property?<br \/>\n    <\/h3>\n<p><!-- htmlmin:ignore --><span class=\"Accordion-icon Icon mb-0 block leading-none Icon--sm icon-base-blue-600\" aria-hidden=\"true\"><svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"Icon-glyph\" viewbox=\"0 0 24 24\" fill=\"currentColor\" focusable=\"false\"><title>Caret Down Icon<\/title>\n<path d=\"M12 17.152c-.33 0-.675-.131-.94-.378L3.384 9.09a1.32 1.32 0 0 1 0-1.86c.51-.51 1.351-.51 1.862 0L12 13.977l6.755-6.747c.51-.51 1.351-.51 1.862 0 .51.51.51 1.35 0 1.86l-7.694 7.684a1.295 1.295 0 0 1-.94.378H12Z\" class=\"icon-base\"\/><\/svg><\/span><\/button><\/p>\n<div class=\"Accordion-contentWrapper\" :id=\"$id('panel-accordion-item-2')\" :aria-labelledby=\"$id('heading-accordion-item-2')\" x-show=\"expanded\" x-collapse=\"\" role=\"region\" style=\"height: 0; overflow: hidden; display: none;\">\n<div class=\"Accordion-content text-gray-700 px-3 pb-4 sm:px-6 sm:pb-6\">\n<p>Construction-to-permanent loans are only for building new properties. There are different loan options for renovating, including:<\/p>\n<ul>\n<li>\n<strong>A <\/strong><strong>personal loan<\/strong><strong>:<\/strong> Some personal loans for this purpose are capped at $35,000, though certain lenders may offer more. When compared to mortgages or home equity loans, personal loans are financed faster. However, they generally come with higher interest rates.<\/li>\n<li>\n<strong>A<\/strong>\u00a0<strong>home equity loan<\/strong><strong> or <\/strong><strong>line of credit<\/strong><strong> (HELOC):<\/strong> If you own a home with significant equity, you can tap into that equity with a home equity loan or a HELOC.<\/li>\n<li>\n<strong>An <\/strong><strong>FHA 203(k) mortgage<\/strong><strong>:<\/strong> If you\u2019re buying an existing home that needs a significant amount of work, a 203(k) mortgage can help you finance the home purchase as well as the renovations.<\/li>\n<\/ul>\n<\/div>\n<\/div>\n<\/li>\n<\/ul>\n<div class=\"HelpfulCTA mx-auto flex flex-col items-center gap-6 my-6 py-12 text-base border-y border-gray-200\" data-helpful-cta=\"\" data-beam-element-viewed=\"\" id=\"did-you-find-this-helpful\" data-type=\"cta\" data-location=\"article-bottom\" data-position=\"banner\" data-text=\"Did you find this page helpful?\">\n<div class=\"HelpfulCTA-initial w-full flex flex-col items-center gap-4\" data-cta-initial=\"\">\n<div class=\"HelpfulCTA-question text-lg font-bold text-center text-gray-900\">\n            Did you find this page helpful?<\/p>\n<div id=\"cvFzoi3y9r\" class=\"hidden\">\n<div class=\"wysiwyg wysiwyg--sm wysiwyg--flush max-w-xs\">\n<p class=\"mb-6 text-base\">\n                            <strong class=\"block font-bold text-gray-900\">Why we ask for feedback<\/strong><br \/>\n                            Your feedback helps us improve our content and services. 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0-.323.322c-.075.15-.075.603-.075 1.226v7.68c0 .623 0 1.075.075 1.226.075.14.183.247.323.322.15.075.603.075 1.228.075h.16c.625 0 1.078 0 1.228-.075a.778.778 0 0 0 .324-.322c.075-.151.075-.603.075-1.227V5.423c0-.623 0-1.076-.075-1.226a.722.722 0 0 0-.324-.322c-.15-.076-.603-.076-1.227-.076h-.161Z\" class=\"icon-base\"\/><\/svg><\/span> <span class=\"text-base leading-4\">No<\/span><br \/>\n            <\/button>\n        <\/div>\n<\/p><\/div>\n<p>    <!-- Yes Form --><\/p>\n<p>    <!-- No Form --><\/p>\n<div class=\"HelpfulCTA-thankyou flex flex-col items-center gap-2\" data-cta-thankyou=\"\" style=\"display:none;\">\n<p>Thank you for your<br \/>\n            feedback!<\/p>\n<p>Your input helps us improve our<br \/>\n            content and services.<\/p>\n<\/p><\/div>\n<\/div><\/div>\n<p>Read the full article <a href=\"https:\/\/www.bankrate.com\/mortgages\/construction-to-permanent-loans\/\" target=\"_blank\" rel=\"noopener\" rel=\"nofollow\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Image by mbogacz\/GettyImages\/Illustration by Hunter Newton\/Bankrate Key takeaways A construction-to-permanent loan finances the construction of a house and converts to a mortgage on completion. Construction-to-permanent loans require only one round of closing costs. They also require a down payment. With a construction-to-permanent loan, you can draw funds at specific phases of construction, up to a<\/p>\n","protected":false},"author":1,"featured_media":24293,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[58],"tags":[],"class_list":{"0":"post-24292","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-homes"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v22.2 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What Is A Construction-To-Permanent Loan? | IncrediPros<\/title>\n<meta name=\"description\" content=\"Image by mbogacz\/GettyImages\/Illustration by Hunter Newton\/Bankrate Key takeaways A construction-to-permanent loan finances the construction of a house\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/incredipros.com\/?p=24292\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What Is A Construction-To-Permanent Loan? 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