This program is designed for the borrower who wishes to obtain a first mortgage loan to construct or rehabilitate a primary residence or second home and obtain permanent financing. The program provides for both a construction and permanent loan. The borrower signs one set of loan documents that cover both the interim construction phase and the permanent loan phase. The borrower may choose from several loan products (Fixed and ARM) and rate lock options that offer a variety of features. The construction period can vary in length between 6, 9, and 12 months.
Additionally, construction periods of 15 and 18 months are available for the 1-year Treasury ARM product. During the construction period, the loan will be interest only with interest payments paid from an interest reserve account. When the home has been completed, the loan will be converted to a permanent mortgage.
Itís in the Details:
- Interest rate protection available with free float down option on many programs
- Simple no-cost modification for permanent loan and free option to request any other loan program
- Loan-To-Cost (LTC) and Loan-To-Value (LTV) up to 95%
- Traditional 15 and 30-Year Fixed loans
- 1 Year, 3 Year (3/1) and 5 Year (5/1) Adjustable Rate Mortgages (ARMs) also available
- Ground-up new construction and major rehabilitation for primary and secondary homes
- Construction terms of 6, 9, and 12 months on fixed products
- Construction terms of 6, 9, 12, 15, and 18 months on adjustable rate products
- Loan amounts of up to $3,000,000.00
- Full Documentation, Stated Documentation, and No Ratio documentation available
- Credit scores down to 620
- Experienced Owner-builder program also available
Some Common Questions and Answers:
I see various lenders advertise Construction-Perm, C/P, CTP Loans, etc. Are they all the same thing? If you spend any time doing research about Construction-to-Permanent loans, you will find that various lenders and brokers refer to them in different ways. CTP, C/P, CP all mean Construction-Perm (or Construction-to-Permanent) mortgage loan products.
What exactly are Construction-to-Permanent Loans? C/P loans usually refer to the financing of new home construction with a one-time closing. This means that in one single loan closing, you can pay for the lot, pay all relevant attorney fees and closing costs, lock in at current market rates, and setup a loan to fund your homes construction each step of the way. When construction is complete and a Certificate of Occupancy is issued, the loan converts into a permanent loan which was setup with the initial closing.
Is it really a one-time closing? Yes. You may have to meet with the attorney or a lender representative for the conversion once the home is complete, but there is not a second closing, and you donít have to qualify again. Once you qualify and close the first time, you are done and nothing that happens in your life can keep you from the permanent financing you established at the closing.
Are C/P loans only for new construction? No. You can also use a Construction-to-Perm loan for major remodeling or renovation projects. Ready to add on a second story? Great. A C/P loan can help you lock in at todayís market rates and financing your renovation. The loan will pay draws to the contractor/builder every time he reaches a new milestone (a new draw on the draw schedule) and when the contractor is complete, your loan will convert to a traditional permanent loan (usually 30 year fixed).
What does Permanent mean? Permanent is the traditional or conventional type of loan you will have once the project is complete. Because we understand you will most likely have other housing expenses during construction, you will only pay a modest (generally interest-only) sum on the amount of money that is actually used during construction. So, if at closing your lot is paid for and the first draw is provided which total $35,000, you will generally only pay interest-only on that $35,000 until the contractor or builder has completed a certain amount of work and a new point is reached on the draw schedule.
Why is my construction rate higher than my fixed rate? The interest rate during construction only applies to the construction period. If you choose not to lock your rate ahead of time, at the time of completion, the rate will drop to the current Fannie Mae/Conventional rate at the 60 day delivery price. If you did lock your rate ahead of time, the lock at completion can be NO HIGHER than the rate you locked it in at, and potentially could be lower if the market will allow. This is a construction-to-perm mortgage and is the best product that I am aware of in the market place at the present time. During the construction phase of the loan, you will be paying interest-only at the construction rate. Sometimes these can be fixed, and sometimes they are based on the Prime rate plus a small margin. Based on the increases in Prime as of late, many borrowers are opting to have a fixed cap that is not based on Prime.