You have probably guessed a construction to perm has something to do with, well, construction. You would be correct. In fact it is the term for a type of bank loan. In this case it is bank financing of the construction of a home. If the term perm is confusing it's really quite simple: this loan will financing the construction all the way up until the permanent loan. In other words it's a construction only loan. Sort of.

Construction to perm (CP) loans also will finance the land on which the construction is occurring. If you are an investor stop right here and go no further. This particular type of loan is only for people who are going to move into the property when the construction is completed. What happens when the construction is completed? You get the permanent loan, of course. There may be some private or small lender somewhere still offering a one-time close but I am not aware of them. You would also want to very carefully consider their costs/terms. Historically one-time close loans, when they were widely available, were more costly in interest than CP loans.

The most important thing about CP loans is, and has always been, cost to value. The more cash the home owner has in the property the more likely they are to be approved. Standard lending guidelines today include:

1. The loan is a purchase transaction of a 1 unit owner-occupied primary residence
   
2. The borrower has 6 month's reserves at closing
   
3. The LTV does not exceed 90% Loan has received an acceptable AUS recommendation (loan may not be manually underwritten)
   
4. Prior to the final construction disbursement, a new residential mortgage credit report or a three-file merged credit report must be obtained and the employment of all borrowers must be verbally re-verified and documented accordingly.

Some things not permitted in CP standard underwriting guidelines are:

1. PUDs that are part of a master planned community
2. Condominiums
3. Cooperative housing
4. 2- to 4-unit housing
5. Manufactured housing
6. Investment properties
7. Tracts of homes
8. Properties in which the borrower has a development interest (for example, if the borrower is also the builder)

A lender with whom you are familiar may offer a CP loan. Without deriding other people in my industry make sure they have done at least a couple of CP loans because they really are different. If they have not done a CP loan just be prepared for a bumpy ride.

I am always happy to answer questions for anyone: builders, home owners, real estate agents or just interested parties feel free to email me through the system or call my cell phone at 678-439-8683.