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Construction perm loans

What Are construction perm loans


construction perm loans are the loans that are offered for the modification or conversion of construction loans but prior to beginning of construction. As we see very often, people build their homes through construction loans that run up to 24 months. In construction loans , only interest is applied during the construction phase. Principal repayment start after construction is over. construction perm loans , which are basically long term loans , automatically convert the construction loan into a general mortgage loan. The borrower repays principal amount as well as interest amount simultaneously.


construction perm loans are available for many types of homes. For example, apart from the construction of standard homes, these loans are offered for modular homes. Even in some cases, these loans are offered for mobile homes. There are some lenders that allow for above type of loans for the remodeling of existing home. Additions are also considered as qualified construction under these loans. Some people buy small homes at lower price and then get construction perm loans for the purchase and construction of bigger homes.


Understanding Them Better


In some cases, construction perm loans prove very useful. This is because these loans are perm anent loans and different types of benefits received are carried up to the end of the loan period. In cases where construction loans have been obtained at low rates, above type of loans can prove money saving loans. At low interest rate which can be carried through the entire loan period, great savings are made. In times, when interest rates are rising, construction perm loans are obtained in higher numbers. This is because borrowers are able to lock the low interest rates and can get rid of anticipated higher rates. It has to be understood here that construction loans have to be eventually converted into mortgage loans after the construction phase is over.


construction perm loans are also offered for purchase of land. In such cases, three individual loans are combined into one. First is the land purchase loan. This is a type of long term mortgage loan that attracts principal as well as interest payments. This loan amount is included in the overall loan package and there is no separate closing of loan. Costs attached with loan closing the thus saved. Second type of loan included is the construction loan and third type of the perm anent mortgage loan to repayment the loan amounts for above two types of loans. When interest rates are low, construction perm loans can prove panacea for people who wish to purchase land and construction a home of their own. Closing costs applied by the lender are substantial and thus, through construction perm loan, these can be saved.


One of the biggest benefits of construction perm loans is that there is no requirement of prequalification. These loans are closed before the start of construction phase. All eligibility conditions and requirements are taken care of by the lender before the loan closing. As soon as construction phase is over, loan conversion takes place and repayment of perm anent mortgage loanstarts. In cases, where a person chooses to refinance the construction loan from some other lender, he not only has to pay additional closing costs but also has to get qualified for the loan. Lenders ask for lot of formalities and these can turn into a headache. All above obstacles and problems can be avoided through construction perm loans. People who have tight schedule and find it hard to take time for applying for loans and fulfilling formalities, these loans are very useful. Professionals have liked these loans in great numbers and have admired their features too. Among beneficial features, there are some shortcomings also by which construction perm loansuffer. For example, as these loans are closed before the start of construction phase, borrowers have to do a lot of leg work for choosing the best lender. Lenders have to be compared on different criteria. Selecting the best lender is not an easy task. In fact, one may have to take help of finance professionals for understanding various aspects attached to construction perm loans and their implications. Hasty decision can prove harmful as terms and conditions of loan are carried through the period, which can run up to 25-30 years. Second restriction attached to the construction perm loans is the interest rate phase. Interest rates in the lending market rise and fall in phases. Not all people can wait to interest rates to fall. A person has to content with the interest rates prevailing in the market. Whether the locked interest rate can be changed or not would depend upon the option provided by the lender. Floating interest rates fall and rise as per the market rates and thus, are good. On the other hand, in era of low interest rates, fixed rates can prove boon for next 25-30 years. Maximum benefits of construction perm loans are received by the people that start planning for their home well in advance and who can wait for some time for interest rates to come down. Long term planning is thus one of pre-requisites of a beneficial construction perm loans.


Availability of construction perm loans is easy. Majority of banks and other such financial institutions are offering these loans to their customers. So far as guidelines and eligibility conditions are concerned, most of lenders have supported conventional guidelines. But there are some new age lenders that provide these loans as regards to FHA guidelines. There are also some lenders that have come up with Float Down option. In this type of loan, interest rate applicable automatically drops when there is a drop in the market interest rate. For getting this facility, fee is charged from the borrower.


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