Real estate investing isn’t just about buying existing properties. For many investors, ground-up construction offers exciting opportunities. But financing new construction can be complex—that’s where construction to permanent loans come in.
A construction-to-permanent loan (or “construction perm loan”) helps real estate investors finance new property construction and then convert it into a permanent mortgage once building is complete. This seamless transition from construction to long-term ownership makes it an attractive option for portfolio growth.
Key Features
Construction to permanent loans have two main phases:
Construction Phase: Funds are disbursed to cover building costs.
Permanent Phase: Once construction is finished, the loan converts into a permanent mortgage with discounted fees and no seasoning requirements.
During construction, most borrowers draw from a line of credit and make interest-only payments on the funds used. For example, AllCap Financial offers a flexible line of credit with a simple underwriting process and four-day construction draws to keep projects moving smoothly.
Unlike traditional construction financing that requires separate lenders, construction-to-permanent loans streamline the process, saving time and money.
Loan Requirements
Requirements vary by lender, but here are three major factors AllCap Financial considers:
Creditworthiness: Minimum FICO score of 660 with no recent bankruptcy, short sale, foreclosure, or deed-in-lieu events.
Experience: Borrowers must have completed five new construction, tear-down/rebuild, or ground-up projects in the past three years. Experienced flippers may qualify.
Proven Income: Borrowers must demonstrate sufficient cash on hand and income to complete the project successfully.
Understanding Rates
Rates determine borrowing costs during construction and permanent financing. Several factors influence rates, including market conditions, loan terms, and lender choice.
During construction, loans are typically interest-only with higher rates but lower payments since you’re not paying down principal. Once converted to permanent financing, loans become fully amortized.
30-Year Construction to Permanent Loans
A 30-year construction to permanent loan offers long-term solutions for investors. You may be able to lock in your long-term interest rate when the loan is funded or get favorable adjustable-rate terms.
This financing offers lower lender fees because borrower and property underwriting can easily be updated, making it an attractive option for investors building properties.
Why Choose Construction to Permanent Loans?
At AllCap Financial, we understand the importance of finding the right home-building strategy. Construction to permanent loans offer valuable benefits:
- Two-phase structure
- Flexible terms
- Cost-saving benefits
- Seamless transition from construction to ownership
However, you must meet loan requirements and work with an experienced lender to ensure success.
AllCap Financial is the nation’s premier private lender for real estate investors. Our new construction loan program is built for builders and designed to help you succeed—whether you’re expanding your build-to-rent portfolio or financing a single project.
Contact us today to discuss your next deal, or apply now to accelerate the process.