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Construction-to-Permanent Loans Explained

It's hard to find everything you want in a home. If you're looking for a house that's perfectly catered to your family's needs, then you may want to consider building versus buying a home. WaFd Bank's Construction-to-Permanent Loan, also called a one-time close construction loan or single close construction loan, will help you build a home that's right for you. Learn how WaFd Bank's construction to permanent loan provides you the money to build your house and your permanent mortgage financing—all rolled up into one loan.

How Do Construction to Permanent Loans Work

If you've already found the right lot to build your dream home, it's time to think about how to pay for the construction. For that, you'll likely need a building loan to pay your builders and contractors. However, you'll also need permanent financing after your dream home is completed. In a lot of cases banks will provide money for these two phases (the construction and the permanent financing) via two separate loans. WaFd Bank's construction-to-permanent loan uses one loan to build your new custom home which will then become your mortgage once construction is complete.

What is the Construction-to-Permanent Loan Offering, or All-in-One Loan, From WaFd Bank

After you've purchased your lot, WaFd Bank's Construction-to-Permanent loan is one loan to cover both the building of your houseand your mortgage after you move into your new home. There's just one application process, one set of fees and one interest rate at the start of construction of your home through the completion of your home AND for the life of your loan. That means less paperwork for you to keep track of and only one payment amount after the construction phase is complete until your house is paid off. Plus, WaFd Bank is a portfolio lender which means we don't sell our loans, so you'll always know where to go if you have questions.

Example of All-in-One Loan

We've got two common scenarios to illustrate how this works. Keep in mind that these are intended to give you a general idea of how an All-in-One Loan works, and actual underwriting is based on loan to value (LTV) which is then based on the lesser of either the appraised value or the acquisition costs. The maximum LTV on primary home is 80%. Now for the examples:

  1. Borrower 1 owns a building lot worth $275,000 free and clear. They wish to build a new home for $450,000. The total acquisition cost would be $725,000 ($275,000 + $450,000). WaFd will lend 80% of the acquisition cost, in this case $580,000, which is more than the borrower needs to build the home, since they only need to borrow $450,000.
  2. Borrower 2 owns a building lot worth $175,000 with a loan balance of $85,000 remaining. The cost to construct a new home is $375,000. The total acquisition cost is $550,000 ($175,000 + $375,000). 80% of the acquisition cost is $440,000, which is enough to cover the cost of building the new home. However, the existing lot loan must be paid off at closing, and after setting aside the $375,000 to build the home there is only $65,000 remaining in the new loan, so the borrower will need to pay $20,000 at closing.

Every situation is different, so it's important to do the math to find out if a WaFd Bank's construction to permanent loan is right for you. Our friendly neighborhood loan officers are great at math and are more than happy to crunch the numbers for you. You can also check out WaFd Bank's custom construction loan rates and use our construction loan calculator to get an idea of what your payment might look like.

How is WaFd Bank a Unique Lender for All-in-One Loans

Many banks that offer construction financing do so in two steps. The first loan covers construction only. After that, you'll need a second, permanent mortgage loan which will require two closings and two sets of fees. If these lenders do not offer one interest rate at the start of construction through the completion of your home and after you've moved in, you may need to plan for fluctuations in interest rates. Mortgage rates may increase before your home is finished which puts pressure on the ability to afford your payments once your home is complete. You might also have to deal with a second application process and even a second appraisal at the completion of your home, depending on your lender's requirements. At WaFd, the construction and permanent financing are rolled into one loan with one permanent rate. Plus, WaFd is a portfolio lender, which means your loan will never be sold and you'll always know who to go to with questions.

Benefits of an All-in-One Construction Loan

With WaFd Bank's All-in-One Loan you'll only need one application, one closing, and one set of fees. The entire project is underwritten before you start construction. Plus, you'll lock in your permanent rate before you even break ground, giving you additional peace of mind. We even give you the option to lock in your interest rate during the processing of your loan application for up to 90 days.

When you start construction, we allow 12 months for interest-only payments on the funds you've drawn to date as your home is being built. Your monthly payments during construction are based on the funds used as your construction progresses (called "monthly draws") from your total loan amount based on the percentage of completion. Your branch manager will help you with your initial loan application, work with you and your builder, oversee the monthly draws, and work side by side with you all the way through the completion of your new home.

Is the Combined Construction Loan and Mortgage Right for You

We know building a custom home may be one of the biggest financial decisions you'll ever make. Since 1917, WaFd Bank has been helping our community by making loans to families in our communities. Today, custom construction financing is a significant part of our business. We understand our clients are not just clients, they're our neighbors.

Contact your local dedicated WaFd Bank branch manager to meet with you one-on-one and learn more about our WaFd Bank's construction to permanent loan. We don't pay on commission, so we're free to give you the personal attention and customized advice you deserve.

To learn more about WaFd Bank's construction financing, read our free Custom Construction Ebook, contact your local branch or contact a loan officer.

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