What is a Construction to Perm Loan vs a Renovation Loan? And What is the Process for Obtaining One?

A construction to perm (C2P) loan is used to finance the build of a new home. A renovation loan is used to rehab or renovate an existing home. Both loans are a one-time closing which combines the loan to build your home as well as the permeant loan when it is completed. You can buy the lot or house with the loan or before starting this process. 

Here are the basic steps:

• Find a lot/land/house
  • You can buy it prior with a land/lot loan or purchase it with the C2P loan
• Find a builder or licensed general contractor
• Build plans are completed
• A builder is approved by the lender if they are not already approved
• Builder provides the cost to complete the build
• The Application is finalized with the lender
• An appraisal is ordered to ensure the value
• The Interest rate is locked generally around this time
• The down payment needed at closing is determined by the value of the appraisal – an estimate for the down payment is given upfront
• The loan is underwritten and approved
• The Loan closes
• Construction or renovation begins
• Interest-only monthly payments
• Builder will take about 3 – 5 draws until the home is complete
• The home is completed and the loan is rolled into a permeant mortgage

This process takes about 60 days to complete. It can take longer than a typical mortgage as there are more steps. Most of our clients need more time to decide on their builder or contractor, nail down their build plans, and receive quotes.  

If you’ve been thinking about purchasing land, building your future home, or renovating your current home our LendScout team is here to answer any and all questions you have!

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