If you’re in the market for a custom built home, you’ve probably heard the term Construction-to-Permanent Mortgage (aka C2P Loan). Sometimes known as “single-close,” “one-time close” or even “all-in-one” loans, C2P mortgages start out as construction loans and then convert automatically to permanent mortgages when the custom home is completed.
These loans are not new. In fact, they have been around for years and are the favored form of financing in the custom home market. These two-stage mortgages allow you to lock in your interest rate and close your loan before construction begins. There is only one closing and no need to re-qualify for the permanent phase of the loan. GW Robinson Homes, a prominent custom home builder in Gainesville, Florida, can put you in touch with one of its preferred lenders who can discuss C2P loans with you, in detail. In the meantime, here are some valuable tips about the construction-to-permanent mortgage process:
How Construction Loans Work
As noted above, construction loans are essentially credit lines that can be used to cover the cost of new home construction. As your project progresses, the builder will request a “draw” to offset building costs that have been incurred. The bank will adhere to the terms of your Construction Loan Agreement and “draw schedule” that specifies the percentage of funds that will be disbursed, as various stages of construction are completed. When a draw request comes in, the bank will confirm the work has been done before approving it – which is why most construction loans are handled locally. Once the draw request has been approved, a portion of your loan will be made available to pay the builder.
Application & Decision
During the application and decision stage, your Mortgage Loan Originator (MLO) will help you understand the different C2P loan options, gather the appropriate documentation, submit your application, and notify you of the bank’s decision. Not all C2P loans are the same, so be sure to ask your MLO which loan product is best for you.
Because C2P loan documents specify the terms of the permanent financing, the construction loan will automatically convert to a permanent long-term mortgage upon completion of construction. Conversion marks the beginning of your permanent loan when you begin to make regular mortgage payments.