Construction to perm financing is a type of short-term loan that is used to finance the construction of a new home or building. With construction financing, the lender provides the funds needed to pay for the materials and labor required to build the home or building, and the loan is typically paid off when the construction project is completed through a secondary refinance transaction. During construction phase, the borrower typically pays interest only payments on funds drawn to date.
Construction loans will require additional approval of the builder and the scope of work. The lender will typically require the builders plans and specs, a survey, and a pre-construction appraisal to determine the projected value upon completion. Once the scope of work is approved, the builder will draw funds up to the credit limit with periodic inspections by the lender to verify progress.
Once the construction phase is complete and the construction loan is drawn to it’s limit, the perm loan refinance transaction will occur to pay off the construction loan. The perm loan can be a standard conventional conforming mortgage at whatever term the borrower chooses.