What Is a Construction-to-Permanent Loan in Real Estate?

A construction-to-permanent loan is a single loan that finances the construction of a new home and then automatically converts into a long-term mortgage after the home is completed. This eliminates the need for two separate closings.

✅ How a Construction-to-Permanent Loan Works

These loans provide short-term funding during construction, followed by an automatic conversion into a fixed-rate or adjustable-rate mortgage. Borrowers only close once, reducing fees and paperwork.

  • Single loan covers construction + permanent mortgage
  • Interest-only payments during construction
  • Loan converts after the home is completed
  • Only one closing required

💡 When a Construction-to-Permanent Loan Makes Sense

This loan type is ideal for buyers wanting a smoother, more affordable way to finance a new construction home without dealing with two separate loans.

  • Building a custom home
  • Wanting a single closing to reduce fees
  • Need predictable long-term financing
  • Prefer interest-only payments during construction

Compared to standard construction loans, this option offers easier budgeting and fewer steps.

📉 Risks of Construction-to-Permanent Loans

  • Rates may be higher than traditional mortgages
  • Strict builder requirements and inspections
  • Construction delays affect conversion timing
  • Loan limits may restrict larger projects

Some borrowers choose a standard construction loan instead if they need more flexibility with builders or timelines.

🏠 Planning a new construction home and want a single streamlined loan?

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