Construction-to-Permanent Loans: How They Work

A construction-to-permanent loan (sometimes called a "single-close" or "one-time close" construction loan) combines two loans into one: the construction loan and the permanent mortgage. Instead of getting a construction loan, building the project, and then applying for a separate permanent mortgage, you close once and the loan automatically converts to a permanent mortgage when construction is complete.

How It Works

With a construction-to-permanent loan:

• You close on a single loan that covers both the construction period and the permanent financing.
• During construction, funds are disbursed in draws as milestones are reached.
• During construction, you typically pay interest only on the drawn amount.
• When construction is complete, the loan automatically converts to a permanent mortgage — no second closing, no new application.
• You begin making principal and interest payments on the permanent mortgage.

Construction-Only vs Construction-to-Permanent

• Construction-only: A short-term loan (12–24 months) that must be paid off when construction is complete. You then apply for a separate permanent mortgage. Two closings, two sets of closing costs.
• Construction-to-permanent: A single loan that converts automatically. One closing, one set of closing costs. You lock in the permanent rate (or the rate structure) at the beginning.

Benefits of Construction-to-Permanent

• One closing: Save on closing costs and paperwork — no second closing required.
• Rate lock: You may be able to lock in the permanent mortgage rate at the beginning, protecting you from rate increases during construction.
• Simpler process: No need to re-qualify for the permanent mortgage after construction.
• Peace of mind: You know the permanent financing is in place before you start building.

Considerations

• Rate lock risk: If rates drop during construction, you may be locked into a higher rate (depending on the loan terms).
• Qualification: You must qualify for both the construction loan and the permanent mortgage at the beginning.
• Availability: Not all lenders offer construction-to-permanent loans. They're more common for owner-occupied residential construction than for commercial or investment projects.
• Terms: The permanent mortgage terms (rate, amortization) are set at closing, even though the permanent phase doesn't begin until construction is complete.

When It May Make Sense

• You're building an owner-occupied home or commercial property and want a single-close solution.
• You want to lock in the permanent rate before construction begins.
• You want to avoid the risk of not qualifying for permanent financing after construction.
• You want to save on closing costs.

Next Step

If you're planning a construction project and want to explore construction-to-permanent financing, submit your information for a review, or read our construction financing guide.