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Your Questions Answered: Construction to Permanent Loans

It's Sunmark's "Welcome Home Week". Are you looking for a new home? We're ready to help you make it happen. Recently, Sunmark added more mortgage products to our line-up to help you do more with your money. All week, our Sunmark experts will provide the answers to your top questions about these new offerings.

Construction to Permanent Loans: Melissa Savage, VP of Mortgage Operations, Answers All of Your Questions.


What is a Construction to Permanent Loan?

Simply put, a construction to permanent loan, often referred to as a “Draw Loan,” is financing used to build a house. With this loan, the borrower takes advances, or “draws,” from an established loan amount to pay the builder for completing steps/phases throughout the construction process.

Who is the ideal candidate for a Construction to Permanent Loan?


A Construction to Permanent Loan is perfect for homebuyers who are building a home, where the builder is unable to finance the entire cost of the project prior to closing. This loan is also a great choice for homebuyers who are purchasing new construction and  want to lock in the permanent terms of their loan prior to the completion of the home.

What requirements need to be met to be eligible for a Construction to Permanent Loan?

There are a number of requirements that homebuyers must meet to be eligible for a Construction to Permanent Loan. First, homebuyers must have a minimum 700 FICO score. Additionally, there is a 10 percent reserve/contingency requirement, which will cover unexpected material increases and change orders. As part of the loan process, Sunmark Credit Union will conduct a Builder Review, with reference checks, on the builder selected by the homebuyer. And finally, construction must be completed within a 12-month period.

If I didn’t meet the requirements, are there other options I could consider?

If a borrower or builder is unable to meet the requirements of the Construction to Permanent Loan, there may be other options available – such as End Financing or purchasing the existing construction.

What are the pros and cons of a Construction to Permanent Loan?

For many new construction homebuyers, the Construction to Permanent Loan is an excellent choice. With this loan, you can finance up to 100 percent of the total cost to build, with funds disbursed as work is completed and inspected. With the Construction to Permanent Loan, you can also select your builder and can choose to purchase land or build on land you already own. The Construction to Permanent Loan is also convenient, with a one-time closing and interest-only payments during construction.

Some of the biggest challenges associated with the Construction to Permanent Loan are associated with quality disputes and possible material delays. This loan is also a complex product with many details, so borrowers will want to keep this in mind.

How does the loan work/what happens once approved? 

With the Construction to Permanent Loan, the application would go through a typical underwriting review, with the additional review of the builder. Once the loan receives final approval, a closing takes place before the home is complete. At the closing, the first draw is issued for material deposits and the builder begins the construction project. As the builder advances through the project, the home would be inspected, and additional draws would be released to reimburse the builder and continue funding the project through to completion. Once the home is 100 percent complete, a Certificate of Occupancy and Final Survey are issued, and the builder would receive the final draw.

What sets this product apart from other options?

For homebuyers interested in building a home, the Construction to Permanent Loan offers a way to achieve their goals of building a newly constructed home, while retaining some control in the process.


About Melissa:

Melissa Savage joined Sunmark Credit Union in 2004 and in her current role as VP of Mortgage Lending, she oversees the mortgage and home equity lending teams and is responsible for strategic growth, product development, member service and employee development. Melissa graduated from Binghamton University with a Bachelor of Science degree in Financial Economics and holds a master’s degree in Business Administration from the University at Albany. She is also a board member of the Northeast NY Mortgage Banker Association.

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