If you are planning to build a new construction home in Florida, you may be wondering how to finance your project. One financing option to consider is a construction-to-perm loan. In this blog post, we’ll explain what a construction-to-perm loan is, how it works, and when interest payments are due. We’ll also discuss how the loan converts to a permanent loan at the completion of construction.
What is a Construction-to-Perm Loan?
A construction-to-perm loan is a single loan that finances both the construction of your new home and the permanent mortgage that will replace the construction loan once your home is complete. This type of loan eliminates the need for separate loans and closing costs – which can get expensive – for the construction and permanent phases of your home financing.
How Does a Construction-to-Perm Loan Work?
With a construction-to-perm loan, you will first receive a construction loan to finance the building of your new home. Your lender works with your Builder based on a set draw schedule. During the construction phase, you’ll make interest-only payments based on the amount you’ve borrowed to date, or which draws have been completed. These payments cover only the interest portion of the loan. Interest-only payments help keep your monthly payments low during the construction phase and free up cash flow for other expenses or savings.
Once your home is complete, the loan will automatically convert to a permanent mortgage. At this point, you will begin making monthly payments that include both principal and interest. The amount of your monthly payments will depend on the amount of the permanent mortgage, the interest rate, and the terms of the loan.
How Does the Loan Convert to a Permanent Loan?
Once construction is complete, your loan will automatically convert to a permanent mortgage. At this point, your lender will appraise your home to determine its value and finalize the permanent loan terms, such as the interest rate and repayment period. The remaining balance of your construction loan will be rolled into your permanent mortgage, and you will begin making monthly payments that include both principal and interest.
A construction-to-perm loan can be an excellent financing option for building your dream home in Florida. With this type of loan, you can simplify your financing, make interest-only payments during construction, and avoid the hassle and expense of multiple loans and closing costs. If you’re considering a construction-to-perm loan, our experienced team at Sposen Homes and qualified lenders can help guide you through the process and find the right financing option for your unique situation.