Modular-Experts.com

The Construction/Perm Loans
A Construction/Perm loan includes both the construction line-of-credit and residential mortgage as one loan. The Construction/Perm loan is a combined loan made directly by the lender to the borrower. It functions as a construction line for financing the construction of the home, and then it serves as a permanent mortgage by paying off the construction line after you complete the construction project.

The Construction/Perm loan has some advantages, namely:

a) The borrower can save money by paying for only one set of closing costs.

b) Since the construction line is contingent upon approval of the residential mortgage, obtaining a construction/perm loan allows the borrower to submit and provide documentation for one loan application and work through one lending institution. The borrower will work with one loan and one lender.

c) Because the loan is made directly to the homeowner, the borrower can take full tax advantage of the interest rate charges.

The Construction/Perm loan may also carry some disadvantages:

a) Obtaining the best rate and terms. Construction/Perm loans carry higher rates than prevailing market rates.

b) Even though you may be working with one lender, usually the loan is managed by two separate departments. You may need to provide duplicate documentation.

Talk with a representative to determine your best options.

This will include verification of employment (e.g., W-2s, pay stubs), or if self-employed, documentation of income, savings and investment account statements. In addition, the lender will require construction specifications and cost breakdown for building your home. You will also need to provide the purchase contract or title to the construction site.

[PREVIOUS]