Definition
A construction-to-permanent loan (one-time close) finances both construction and automatically converts to a permanent mortgage upon completion. No second closing, no second application approval process. Interest rates are locked during construction or float to conversion.
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Find my pathAbout this term
Construction-to-permanent loans, also called 'one-time close' loans, streamline the financing process by combining construction and permanent financing. After construction completion, the loan automatically converts to a standard mortgage at a predetermined interest rate. This product saves borrowers from closing costs and approval processes associated with two separate loans. Lenders conduct appraisals on the projected finished value, and rates may be locked during construction or float until conversion. Construction-to-permanent loans are increasingly popular for owner-builders.
Pro Tip
Construction-to-permanent loans cost less overall than separate construction and permanent loans; they're ideal if you can lock your rate before construction starts.
Example
You obtain a one-time-close construction-to-permanent loan for $400,000 at 6.5% fixed. After 8-month construction, the loan automatically converts to a 30-year mortgage without a second closing.