Construction to Permanent Loan Lenders: Complete Guide for 2025

If you’re planning to build a home, one of the most efficient financing options is a construction to permanent loan — and choosing the right lender is critical. This type of loan streamlines the financing process by combining the short-term construction loan and the long-term mortgage into one package, eliminating the need for multiple closings.

In this guide, we’ll explain how construction to permanent loans work, what to look for in lenders, the top types of lenders available, and tips for getting approved.

What Is a Construction to Permanent Loan?

A construction to permanent loan (also called a “single-close” or “one-time-close” loan) is a mortgage product that:

1. Funds the construction phase: The lender disburses funds in stages (draws) as construction progresses.
2. Converts to a permanent mortgage: Once construction is complete, the loan automatically converts to a traditional mortgage.

Key benefits include:

• One Closing: Pay closing costs only once.
• Locked-In Rate: Many lenders allow you to lock in your mortgage rate before construction begins.
• Simplified Process: No need to reapply for a separate mortgage after construction.

How Construction to Permanent Loans Work

1. Application and Approval

• Borrower submits income, credit, and project details to a lender.
• Lender evaluates your finances, building plans, and builder credentials.

2. Closing

• One closing covers both the construction phase and the permanent mortgage.
• Closing costs are paid once.

3. Construction Phase

• Funds are released in draws tied to specific milestones (foundation, framing, roofing, finishes).
• Inspections confirm completion before each draw is disbursed.
• Interest-only payments are made during construction on the amount drawn.

4. Conversion to Mortgage

• After the final inspection, the loan automatically becomes a permanent mortgage with fixed principal and interest payments.

Why Choosing the Right Lender Matters

Not all lenders offer construction to permanent loans, and even among those who do, terms and requirements vary significantly. The lender you choose will affect:

• Interest rates
• Down payment requirements
• Loan limits
• Builder approval process
• Customer service during construction

Types of Construction to Permanent Loan Lenders

1. National Banks

• Examples: Wells Fargo, Bank of America, U.S. Bank.
• Pros: Nationwide availability, competitive rates, established reputation.
• Cons: Stricter qualification requirements, less flexibility.

2. Regional and Local Banks

• Operate in specific states or regions.
• Pros: More personalized service, better understanding of local markets.
• Cons: Limited geographic coverage, smaller loan programs.

3. Credit Unions

• Member-focused financial institutions.
• Pros: Lower rates and fees, flexible underwriting.
• Cons: Membership requirements, limited builder networks.

4. Mortgage Brokers

• Work with multiple lenders to find the best deal.
• Pros: Can compare multiple offers, save time.
• Cons: Broker fees, less direct control of the loan process.

5. Specialized Construction Lenders

• Focus solely on construction financing.
• Pros: Deep industry expertise, flexible draw schedules.
• Cons: May have higher rates or fees.

Requirements from Construction to Permanent Loan Lenders

While requirements vary, most lenders expect:

• Credit Score: 680+ for conventional; FHA, VA, or USDA one-time-close loans may allow lower.
• Down Payment: 10–20% for conventional; as low as 0–3.5% for government-backed loans.
• Debt-to-Income (DTI) Ratio: Usually ≤ 43%.
• Licensed Builder: Must be approved by the lender.
• Detailed Plans and Budget: Blueprints, permits, itemized cost breakdown.
• Appraisal: Based on projected value after completion.

How Payments Work

During Construction:

• Interest-only payments on funds drawn.
• Example: Loan amount $500,000; month 1 draw $100,000 → interest charged only on $100,000.

After Construction:

• Loan converts to fixed principal and interest payments over 15, 20, or 30 years.

Steps to Choose the Best Construction to Permanent Loan Lender

1. Define Your Needs

• Determine budget, loan amount, and desired features (rate lock, draw schedule flexibility).

2. Research Lenders

• Start with your current bank or credit union, then compare to specialized construction lenders.

3. Compare Loan Terms

• Interest rates during construction and permanent phases.
• Down payment requirements.
• Fees and closing costs.

4. Evaluate the Builder Approval Process

• Some lenders have strict requirements for builder licensing and experience.

5. Check Reviews and Reputation

• Look for lenders with positive customer feedback during construction projects.

Tips to Get Approved by Construction to Permanent Loan Lenders

• Improve Your Credit Score: Pay down debt, avoid late payments, and fix credit report errors.
• Save for a Larger Down Payment: Lowers your loan-to-value (LTV) ratio and may reduce rates.
• Choose a Reputable Builder: Lenders prefer licensed contractors with a strong track record.
• Prepare Detailed Plans: The more specific and realistic your plans and budget, the better.
• Get Preapproved Early: Know your budget before finalizing designs or purchasing land.

Frequently Asked Questions

Construction to Permanent Loan Lender Checklist

• Compare rates and fees from at least 3 lenders.
• Verify builder approval process.
• Check rate lock options.
• Review draw schedule flexibility.
• Ensure loan limits match your budget.

Final Thoughts

Choosing the right construction to permanent loan lender can save you time, money, and stress. The best lenders offer competitive rates, clear communication, and smooth transitions from construction to mortgage.

By comparing multiple options, understanding lender requirements, and preparing your financial and construction documentation, you’ll be in the best position to secure financing that supports your project from groundbreaking to move-in day.