Construction-to-Perm

About this program

How it works — step by step

1. 1

   Take the 60-second check-in

   Five questions about your construction project, income type, and timeline. The matcher identifies whether a one-time-close construction-to-perm or a two-close approach better fits your builder's schedule and your income documentation.

2. 2

   Finalize builder and construction contract

   Lenders require a signed construction contract with a licensed, insured builder, detailed project plans and specifications, and a construction budget/draw schedule. Your builder must be approved by the lender before the loan closes.

3. 3

   Appraisal of the completed project

   The lender orders an "as-completed" appraisal based on the construction plans. The loan is sized against the lesser of the construction cost or the completed-project value.

4. 4

   Construction phase — interest-only draws

   Funds are drawn in stages as construction milestones are reached. An inspector verifies each milestone. You pay interest only on the outstanding draw balance during construction — not on the full loan amount.

5. 5

   Conversion to permanent mortgage

   At construction completion (confirmed by final inspection and certificate of occupancy), the loan converts to the permanent mortgage. Rate and terms were established at the original closing. No second closing, no second set of closing costs.

What it usually looks like

• Signed construction contract with a licensed, insured, lender-approved builder
• Full construction plans, specs, and draw schedule
• "As-completed" appraisal supporting the loan amount
• Credit score typically 680+ (720+ for best programs)
• Down payment typically 10–20% of the total project cost
• Income qualification on the permanent loan terms (not just the interest-only construction phase)
• Construction timeline typically 6–18 months; max term varies by program
• Builder must carry general liability and workers' compensation insurance

How it compares

Program terms, LTV limits, and documentation requirements vary by lender. As of June 2026. Not a commitment to lend.

Real scenarios

Who this fits

• Mortgage for an Established SMB Owner

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• Mortgage for a Startup Founder

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• Mortgage for a Business Owner Building a Rental Portfolio

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Common questions

What is a construction-to-permanent loan?

A single-close loan that finances both the construction phase and the permanent mortgage. One closing, one set of documents. During construction, you draw funds in stages and pay interest only. At completion, the loan automatically converts to a standard amortizing mortgage.

How is the loan amount determined?

Based on the lesser of the construction cost or the "as-completed" appraised value. If your build costs $800K and appraises for $1.1M at completion, you can borrow up to a program-specific LTV of the $800K cost.

What do I pay during the construction phase?

Interest only on the outstanding drawn balance — not on the full committed loan amount. As draws increase, monthly interest charges increase. You don't start paying principal and interest until the loan converts at completion.

Can I use a construction-to-perm loan if I'm self-employed?

Yes — same income documentation as a conventional purchase loan. You qualify on the permanent loan terms (full P&I payment), not the interest-only construction phase. If tax-return income is insufficient, a Non-QM construction program may qualify on bank statements.

What is the difference between a one-close and two-close construction loan?

A one-close (construction-to-perm) locks your permanent rate at the first closing — you know your long-term rate before breaking ground. A two-close requires a second loan application and closing when construction completes, giving you flexibility to shop rates but adding cost and rate risk.

What happens if construction goes over budget?

The original loan amount is fixed. Budget overruns must be covered with cash out of pocket or a construction contingency reserve built into the original budget. Experienced lenders typically require a 5–10% contingency line in the initial draw schedule.

Does the builder have to be pre-approved?

Yes. Most construction lenders require the builder to be licensed and insured, and submit to a lender review of their track record and financial standing. Your builder should be prepared to provide a contractor questionnaire and proof of insurance.

What is a draw schedule?

A pre-agreed list of construction milestones (foundation, framing, rough-in, drywall, completion) tied to specific draw amounts. Funds are released to the builder or into escrow when an independent inspector confirms each milestone is complete.