What is a Construction to Permanent Loan?

Real estate investing often involves more than just purchasing existing properties. For many investors, ground-up construction is an appealing opportunity.

But financing new construction projects can be complex, which is where construction to permanent loans come into play.

A construction-to-permanent loan, sometimes referred to as a “construction perm loan,” is a unique loan designed to help real estate investors finance the construction of a new property and then refinance into a permanent mortgage once construction is complete.

This type of loan provides a seamless transition from the construction phase to long-term ownership, making it an attractive option for investors looking to build their real estate portfolios.

Key Features of Construction to Permanent Loans

Construction to permanent loans have two main phases.

  1. During the construction phase, funds are disbursed to cover the property’s costs.
  2. Once construction is finished, the loan can easily be refinanced into a permanent mortgage with discounted fees and no seasoning requirements, eliminating the need for a separate financing partner.

During the construction phase, most borrowers draw funds from a line of credit available to them during the building process. Typically, borrowers are only required to make interest-only payments on the funds they draw.

For example, Lima One offers borrowers a flexible line of credit, a simple borrower underwriting and renewal process, and a four-day construction draw process. This helps keep the project going during construction as builders pay for things such as materials and labor.

Unlike traditional construction financing that requires separate lenders (one for the construction loan and another for the permanent mortgage), construction-to-permanent loan solutions can streamline the process and documentation, saving time and money.

Construction to Permanent Loan Requirements

The specific requirements for construction to permanent loans vary among lenders. Here are three of the major things Lima One considers when underwriting construction loans. Of course, more detailed underwriting requirements will also apply.


A strong credit history and a good credit score are crucial. Lima One requires a minimum FICO score of 660 and no bankruptcy, short sale, foreclosure, or deed-in-lieu events in recent years.


Borrowers need to have completed five new construction projects, tear-down/rebuild properties, or ground-up construction projects over the past three years to be eligible. Experienced flippers may be considered as well.

Proven Income

We need borrowers to demonstrate the cash on hand and income to show they have the liquidity to complete the project successfully. Naturally, more detailed underwriting requirements will also apply.

Construction to Permanent Loan Rates

Rates are important to consider when investors are considering construction to permanent loan lenders. These rates determine the cost of borrowing during both the construction phase and the subsequent permanent financing period.

Understanding how construction to permanent loan rates work is essential for making informed financial decisions as a real estate investor. Several factors can influence rates including market conditions, loan terms, and lender choice.

Remember, loans are typically interest-only during the construction term, and then fully amortized as permanent loans. Interest-only loan rates will generally be higher, but payments may be lower because the borrower is not paying down the principal.

30-Year Construction to Permanent Loan Rates

A 30-year construction to permanent loan is tailored to real estate investors seeking long-term solutions for their financing needs.

When investors have a construction to permanent loan, they may be able to lock in their long-term interest rate when the loan is funded at the beginning of construction or get favorable adjustable-rate terms.

This financing offers several key advantages, including lower lender fees on long-term financing because much of the borrower and property underwriting can easily be updated.

This streamlined process and fee structure make construction to permanent loans an attractive option for investors looking to build properties.

Choosing Construction to Permanent Loans for Home Building

At Lima One Capital we understand how important it is to find the right home-building strategy for your real estate investment, especially in today’s market. Construction to permanent loans are a valuable financing option for real estate investors.

With their two-phase structure, flexible terms, and potential cost-saving benefits, these loans can be a smart choice for investors looking to build and expand their real estate portfolios.

However, it’s essential to meet the loan requirements and work with an experienced lender to ensure the construction process seamlessly transitions into permanent ownership.

Lima One Capital is the nation’s premier private lender for real estate investors. Our new construction loan program is built for builders, and it’s designed to help builders be successful.

Whether you’re a builder seeking a new construction loan to expand your portfolio of build-to-rent homes, or an investor looking to finance a single-build project, Lima One’s team is determined to find the lending solution for you.

Contact us today to discuss your next deal, or if you have a deal in hand, accelerate the process by applying now.