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Understanding a Construction Perm Loan

March 30, 2020
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Choosing to have your own custom home built is a major investment of time and money. It is also a more complicated process because of the need to have increments of money available throughout the construction phase, as well as the money needed for the final mortgage. While you could choose to take out separate loans for each phase, a construction to permanent (construction perm) loan potentially makes the process of building one of the homes in Gig Harbor WA much easier.

Ultimately, a construction perm loan is two loans in one. It combines the loan needed for the construction costs with the loan for your final mortgage. By choosing this type of loan, you only need to provide the relevant financial documents and scores once and there is only one closing, also reducing costs. This makes a significant difference, because you’re not having to search out multiple lenders and deal with multiple copies of paperwork and closing costs.

A construction perm loan typically allows you to borrow up to $2 million. In most cases, a down payment of at least 20 percent of the estimated mortgage is required. During the construction phases, money is released in stages to cover building costs and any relevant fees. During this period, the buyer is responsible solely for interest payments, though the interest rates are variable during this period. Fortunately, it is often possible to lock in your final mortgage rate as soon as construction begins, eliminating the risk of potentially higher interest rates when it comes time to convert the loan into a regular mortgage.

In fact, once construction is complete, the remaining money in the loan is converted by the lender into a standard mortgage, typically a 15- to 30-year mortgage with your choice of a fixed or adjustable-rate loan. Since you’ve already gone through the whole process of qualifying for the loan and closing, you don’t have to worry about another set of closing costs, because everything is already complete.

The construction perm loan is so attractive because it saves time and money, is easier to qualify for than just a construction loan, allows you interest-only payments during construction, and ultimately provides more flexibility. So if you’re considering building one of the new homes in Gig Harbor WA, from scratch, whether on your own lot or in a community, seriously consider the construction perm loan. You’ll end up with your dream home — especially when you choose Garrette Custom Homes — and you’ll have a single loan to help reduce stress and costs.

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