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The nuts and bolts of a construction-to-permanent loan

Posted October 1, 2019  |   Topics: Home Financing & Renovation

A cozy breakfast nook in the kitchen. A master bath with heated floors built in. A custom walk-in closet. Your one-of-a-kind dream home is full of possibilities. But before you build, here are five things you should know about construction-to-permanent loans.

1. They’re exactly what they sound like.

With a construction-to-permanent loan, you borrow money to pay for the construction costs of building your home. It starts out as a short-term loan, similar to a line of credit, funding each stage of the build. During construction, you only pay interest on the outstanding balance. Once your home is built, it becomes a permanent mortgage.

2. From start to finish.

Builder Activation is the first step in the process to create a seamless and stress-free construction draw for each stage of your build. Your builder will submit their application to the financial institution, demonstrating they have the financial ability and experience to complete your home on time and within budget. Once your builder is approved and your loan closes, your builder will have up to 12 months to build your home.

3. One closing. One closing cost.

We feature a one-time close construction loan which means two things: 1. Your rate is locked in and you don’t have to worry about rates rising; and 2. You only have one set of closing costs. Not all lenders offer this type of one-time close loan for construction. Some offer a two close loan that finances the build. Upon completion of the build, a second closing happens on a traditional mortgage, meaning your rate has the potential to rise with market conditions at the end of your build and you’ll have to pay another set of closing costs.

4. Understanding the draw process.

Before the house is even built, a draw schedule will be created detailing the payment plan for each milestone of the construction project. During each stage of the build, from backfill to turn-key to dry wall and more, a portion of the overall loan amount will be sent to the builder for each stage, based on documents submitted and verification of completion of previous stage.

5. Not all lenders are created equal.

Before you pick a lender, do your homework. Not all financial institutions offer the same loans or charge the same fees. Make sure your lender has experience working with contractors and suppliers in the area. LMCU is Michigan’s number one construction lender* and we’ve helped thousands of homeowners like you build the home of their dreams.

Fall is a great time to begin the build process. If you have questions or you’re ready to get started, connect with a Loan Officer at (866) 452-6797 or

*MarketTrac, Feb 2019. LMCU NMLS ID #442967. Equal Housing Lender.

Topics: Home Financing & Renovation