Construction to Permanent Loan
This is a two phase loan. The first phase is a short term loan used for financing construction (usually between 1 to 1 ½ years). The lender disburses funds to the builder at periodic intervals as work progresses. This type of loan will automatically convert to an end loan once construction has been completed (phase 2). The end loan product is selected at the beginning and can be any product such as a Fixed Rate Loan, ARM or Option ARM.
PRO: There is only one closing and one set of closing costs as opposed to having a separate construction loan followed by an end loan in which there is two closings and double the cost. Also, During construction you do not pay interest on all of the borrowed money at one time, only on the money you have drawn to pay the builder.
CON: Construction loans require much more paperwork than a traditional loan. It is very important that you take the time with your PAR East mortgage consultant to make sure all parties are on the same page.