If you are interested in building your own new custom home from the ground up with ICI Custom Homes, you may be interested in a Construction to Permanent Loan. Also called a Construction to Perm Loan, or just Construction Perm Loan, these types of loans are taken out before your home breaks ground. Then, once your home is complete, it functions as a standard loan that most people are familiar with.

ICI Custom Homes Division’s Project Manager for North Florida, Matt Wilford, interviewed John Robinson to give us some answers on what exactly these loans are and how they can benefit a future homeowner. John Robinson is the Vice President of Mortgage Banking at Hancock-Whitney.

Read below for the interview, or watch the video for more information.

What is a Construction to Permanent Loan?

MW: Today we’re going to talk a little bit about Construction Perm loans. So, John what exactly is a Construction Perm loan and how does it work?

JR: Well that’s a great question. A Construction to Perm loan is used to build a home on a lot of your choosing. It’s just like any other loan that you’re used to, except it’s divided up into two phases. You have your construction phase, which is at the beginning, and then your permanent phase where you pay back the mortgage. Now you take the construction loan out at the beginning of the build, really before shovel hits the dirt. And the proceeds of this loan is going to be used to fund the construction. Now it’s not all used at one time. It’s used in small increments called draws and it will slowly grow throughout the build.

The nice thing is that the payments are interest-only payments, only on what’s been used. So, it keeps your payments very low during the construction phase. And then after the home is built, the loan moves from this interest-only to a principal and interest payback, which is a standard type of loan that most people are used to.

When should I start looking for a Construction to Perm Loan?

MW: Excellent. So, you know, I know that there’s some intricacies with these kind of loans. So, when is a good time to get started if the homeowner was to go that route? When’s a good time for them to get started kind of looking at doing a Construction to Permanent loan?

JR: Well, that’s a fantastic question because the best time to get started is as soon as you have an idea on what your budget is for your home construction because you want to know how the financing is going to work, what your payments might be before you start making all of your final selections on your house. That way, you can know what your budget is and design within it instead of having to back into it later. So, the earlier the better. Once you have an idea on the amount of money you’d like to spend and you feel comfortable with, go ahead and take the time to get pre-qualified to get an idea on how the loan will look.

Can my lot be used as a down payment?

MW: Excellent. You know, I know a lot of folks come to us and they own a lot already. Can they use that lot as equity or down payment towards that Construction to Perm loan?

JR: Another great question. Yes, 100%. Whether you paid for that lot in cash, whether you got that lot gifted to you, or if you took a lot loan, any amount of money that’s in that lot counts towards your down payment.

What should I know before getting a Construction to Perm Loan?

MW: Excellent, excellent. Now what are, what are some “do’s” and “don’ts” when approaching these loans? Is there anything that homeowners or potential homeowners that are looking to build, is there anything that they need to kind of  keep an eye on? So, maybe some things that they should or shouldn’t do?

JR: Absolutely. One of the things is making sure to select a lender that has a level of expertise in these types of loans. Many homeowners approach this just like any
other lending, where they’re looking for a particular, maybe an interest rate, or just a Google search to find it. Also ask what their experience level is with these loans because it is absolutely invaluable to have an experienced loan officer help you with this process.

MW: Excellent, excellent. Well John, we really thank you for coming in today and just giving us a little bit of the ins and outs of the Construction to Perm Loan. Thank you so much.

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