You could obtain an initial loan to fund the construction, and then get a long-term mortgage to pay off the remainder of the project once the home is built. But when you do it that way, you end up paying two sets of closing costs. You also waste time and effort shopping for two separate loans.
With construction-to-permanent financing, that second loan is unnecessary. The construction loan and the long-term mortgage are all part of the same transaction. One closing will take you all the way from construction, through moving day, through your new life as owner and occupant of a special home built to meet your individual needs. Another advantage to a single loan closing to cover both construction and long-term financing?
Picture this. You have your heart set on a home that’s been built to your specifications. You get approved for the initial loan that funds the construction. So far, so good. But something happens over the next six months while construction is taking place. Maybe you get laid off from your job. Maybe your salary gets cut. Then when it comes time to get the long-term mortgage, suddenly you don’t qualify. A construction-to-permanent loan spares you that uncertainty. The initial closing locks in a fixed rate, and the loan converts to permanent financing at the end of construction with no additional fees.
More security means more confidence, which means more willingness to get off the fence and commit to a purchase. Construction-to-permanent also has the following advantages: