Blog

When you’re building your own home, you have a number of financing options available to you. One of these options is construction permanent financing. There are a number of benefits that come with construction perm financing that can work in your favor and help simplify the process of building and financing your new home. Learn how construction permanent financing works and how it can benefit you below.

Construction Permanent Financing

How does it work?

The bank extends a line of credit to the builder known as a construction permanent loan. The loan is structured into 6 draws that are contingent on the home’s construction reaching 6 different phases of completion. For example, once the home is 50% complete, the builder will call for a draw on the loan. A bank inspector visits the property to verify that it is 50% complete and will then issue the funds for the next draw on the loan.

Once the home is complete, the bank retains 10% of the loan until the county issues a use and occupancy permit or equivalent, and the builder provides the bank with any remaining documents. The bank will then issue the last draw to the builder, and the loan is converted from a construction loan to a permanent loan. This can be done using a number of financing products.

What are the benefits for the homeowner?

Construction permanent financing offers a number of benefits to the homeowner.

1. Closing Costs. With construction perm financing, the homeowner closes on the land before the home is built, as opposed to once the home is built. This means that the transfer tax (which is assessed at closing) is assessed on the value of the lot, instead of the lot and the home. This means the homeowner saves a significant amount on the transfer tax. Not to mention you only have to close once on the property.
2. Interest on the Draw. During construction, you’ll only pay interest on the current draw, as opposed to the loan as a whole. This can also provide you with a potential tax benefit. (Consult your tax advisor. You have your choice of fixed or variable rate interest during construction as well.
3. Lower Sales Price. When you use a construction permanent loan, you’ll receive a consumer rate as opposed to a commercial rate. This saves the builder money, a savings which will be passed on to you in the final sales price of your home.

These are a few of the major benefits of construction permanent financing, but they’re not the only ones. To learn more about using construction permanent financing to build your new home in Maryland, contact Lifetime Series Homes today.

Construction permanent financing is a financing option we offer that handles both the construction and post-construction phases of ownership of your home. This all-in-one financing solution is ideal because it streamlines the financing process with one coordinated plan with only one settlement, instead of two. Learn more about how construction permanent financing works in our blog.

Construction Permanent Financing

During Construction

During construction, the builder uses the construction permanent loan as a line of credit, structured into 6 draws, corresponding to phases of construction. When the builder completes a phase of construction, they will call for the next draw to continue construction. The lender sends an inspector to ensure verify construction is complete up to the next phase, and then releases the funds.

When the home is complete, the remaining 10% of the loan is held back until the use and occupancy permits and other documents are received, at which time the builder receives the final draw.

After Construction

At this point, the loan is converted into permanent financing, and is used to pay the lender for ownership of your home. There are a number of permanent financing options available for this stage.

The Advantages of Construction Permanent Financing

So what does the buyer stand to gain by choosing construction permanent financing? Lot’s of things! Here are some examples.

• Because you only close once when you purchase the land (as opposed to once on the land and once on the completed house), you stand to save a lot on closing costs and transfer tax. This tax is assessed on the value of the property at closing time, which would be a lot more on a completed lot than it would on an unimproved property.
• During the construction phase, you’ll only pay interest on the current draw, as opposed to the loan as a whole. This can result in potential tax benefits. Be sure to consult your tax advisor.
• With construction permanent financing, the builder can use a commercial line of credit to build the home, which is more affordable than the lines of credit usually available to the builder. These costs savings can be passed on to you in a lower sales price.

About the Lifetime Series Homes by Mueller Homes

The Lifetime Series Homes by Mueller Homes are a series of semi-custom house designs that were created with the intention of providing home buyers with a new option when it comes to shopping for a home. The Lifetimes series includes 14 home templates including, 2 story, first floor master, and ranchers that are pre-designed and ready to build. Because they are ready to build, clients save significant time and money that would have gone into designing a custom home, yet with the Lifetime Series by Muller Homes, clients still get the build quality, attention to detail, and communication that comes with working with a custom home builder. We serve the central Maryland area, and also provide assistance with lot acquisition, evaluation, and home buying finance. Keep up with us on our blog as well as on Facebook, Twitter, Google+, Pinterest and YouTube.