A construction to permanent mortgage loan is a very common form of financing at the end of a construction project where the completed building is going to be retained long term by either the property owner or a buyer.
In cases of a self build, there is typically a construction loan that covers off the cost of construction, followed by a construction take out mortgage or permanent loan that pays out the construction loan and any other charges against the property in favor of a long term residential or commercial mortgage, depending on the property type.
When the builder, developer, or property owner are building something for resale, the construction to permanent mortgage will be acquired by the buyer and will be used to purchase the property.
The large majority of cases where construction to permanent mortgage are required are residential builds where the property owner is responsible for both the construction loan and the long term take out mortgage.
In these situations, there are two basic approaches to securing a long term permanent mortgage.
The first approach is where the construction loan is provided by a bank or institutional lender who will also require that the borrower apply and be approved for a take out mortgage with them, prior to any construction draws being issued.
This is a somewhat restrictive process in that you are limited to the programs, rates, and terms that your source of construction financing is prepared to offer you which may or may not be the best available in the market.
The second approach is to use a private mortgage lender to provide the construction loan and then go to an institutional lender of your own choosing to secure the construction to permanent mortgage.
Under this approach, there can be a number of potential benefits available to you. First, you don’t have to get financing done before the construction project even begins, giving you some time to look around the market for a residential mortgage program that best fits your needs. Second, you are not locked into one lenders programs, providing more potential choices for your long term mortgage requirements. Third, its not uncommon that you can get a better permanent loan commitment once the construction project is completed or near completed. With the risk of construction removed, the lender may be willing to be more aggressive on rates and terms to get your business.
One of the most important aspects of the construction to permanent mortgage process is that you have your long term funding arranged and ready to go when required.
If there are delays in getting this in place, you may incur additional costs on the construction financing side (which tend to be at higher rates), or other types of penalties for either not paying out the construction lender on time or not having funds available to pay for the last of the construction costs.
If you require a construction to permanent mortgage for your current project or one you’re planning, I recommend that you give me a call so that we can discuss your requirements together and go over different options available to you.