Residential Construction-to-Permanent Loans: What They Are and How They Work

Residential construction loans are becoming more and more popular — though some banks don’t offer them (we do!). Many believe their rise in popularity is mostly due to the national shortage in existing housing — more people are building new! Sometimes, a person seeking a construction loan already owns the land in question, but a land purchase can be packaged together with a construction loan.

So — what is a construction-to-permanent loan? It is a mortgage loan with two phases that provides funds for building a residence. In the first “construction” phase, payments made are interest-only based on draws of loan funds as construction progresses, to make the often expensive construction process more feasible to more people. After construction is complete, during the second “permanent” phase, the loan becomes structured like a typical mortgage with principal and interest payments.

A nice feature of construction-to-permanent loans at Kennebunk Savings: we offer one-time closing! For some construction loans, there are two sets of appraisal and closing costs – before and after construction is complete. Instead, we use the “as-complete” value determined before construction. This can save you both time and money. We also do not limit the number of “draws,” as some banks do, which gives you and your builder more flexibility.

Looking for more information? Reach out to one of our residential lending officers here. They can provide more current rates and terms, and answer any questions you may have. We recommend speaking with one of them early in the process to determine what documentation will be needed from you in your specific case to apply for a loan. Here’s a checklist to review and give you a sense of what creditors typically look for. Initial approval takes a matter of a few days, and generally you can be approved and building within months.

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