Real estate investing isn’t just about buying properties; it’s also about creating them from scratch. For many investors, the appeal of building new properties is undeniable.
However, financing these construction projects can be a bit tricky. This is where construction-to-permanent loans come in handy.
What is a Construction to Permanent Loan?
A construction-to-permanent loan, also known as a “construction perm loan,” is a unique financing option that helps you fund the construction of a new property and then easily transitions into a permanent mortgage once the construction is complete.
This type of loan offers a smooth shift from building to owning, making it a popular choice for investors keen on expanding their real estate portfolios.
Key Features of Construction to Permanent Loans
Construction-to-permanent loans have two main phases:
- Construction Phase:
- Funds are provided to cover construction costs.
- Most borrowers draw funds from a line of credit during this phase.
- Typically, only interest payments are required on the drawn funds.
- Permanent Phase:
- Once construction is done, the loan converts into a permanent mortgage.
- This phase comes with discounted fees and no seasoning requirements.
For example, Magis Funding Solutions offers flexible lines of credit, simple underwriting, and a quick four-day construction draw process to keep projects moving smoothly.
Unlike traditional financing, which requires separate loans for construction and permanent mortgages, construction-to-permanent loans streamline the process, saving both time and money.
Requirements for Construction to Permanent Loans
Each lender has its criteria, but here are three major factors Magis Funding Solutions considers:
- Creditworthiness:
- A minimum FICO score of 660.
- No recent bankruptcy, short sales, foreclosure, or deed-in-lieu events.
- Experience:
- Completion of five new construction projects or similar ventures in the past three years.
- Experienced house flippers may also qualify.
- Proven Income:
- Demonstrated cash on hand and sufficient income to ensure project completion.
Rates for Construction to Permanent Loans
Loan rates are crucial as they affect the cost of borrowing during both construction and the permanent financing period. Factors influencing these rates include market conditions, loan terms, and the lender you choose.
Typically, during the construction term, loans are interest-only, which often results in higher rates but lower monthly payments since you’re not paying down the principal.
30-Year Construction to Permanent Loan Rates
For long-term solutions, a 30-year construction-to-permanent loan might be ideal. This type of loan often allows you to lock in a long-term interest rate at the start or benefit from favorable adjustable-rate terms.
Advantages include:
- Lower lender fees on long-term financing.
- Streamlined borrower and property underwriting processes.
Why Choose Construction to Permanent Loans?
At Magis Funding Solutions, we know the importance of finding the right home-building strategy for your investments. Construction-to-permanent loans offer a flexible and cost-effective solution with their two-phase structure.
Whether you’re looking to build rental homes or finance a single project, meeting the loan requirements and partnering with an experienced lender ensures a smooth transition from construction to ownership.
Magis Funding Solutions stands out as the nation’s premier private lender for real estate investors. Our new construction loan program is tailored for builders and designed to support their success.
Contact us today to discuss your next project, or if you’re ready to move forward, apply now to accelerate the process.
Build smart, invest wisely with Magis Funding Solutions.