Construction-to-Permanent Loan: How It Works and When New-Home Buyers Need One
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A construction-to-permanent loan is one mortgage plan that pays for building a home and then turns into your long-term loan when the home is done. Under Fannie Mae's rules, you must hold title to the lot, so this loan is mainly for building on land you own or buy as part of the deal. If you are buying a home a builder is putting up in its own community, you usually use a regular purchase mortgage at closing instead.
What is a construction-to-permanent loan?
During the build, the lender pays out money in steps to the builder or contractor. When the home is finished, the loan becomes a normal long-term mortgage.
Fannie Mae's Selling Guide (topic B5-3.1-01, checked November 3, 2026) describes it as a long-term mortgage that replaces the short-term construction financing a borrower used to build a new home. It can be set up with one closing or with two separate closings.
Here is the rule that matters most for new-home shoppers. Fannie Mae says the borrower must hold title to the lot. The lot can be one you already own, or one you buy as part of the same deal.
Do you need a construction loan to buy a new-construction home?
Most of the time, no. In a planned builder community, the builder usually owns the land and pays for the build. You sign a purchase contract, put down a deposit, and close on a regular mortgage once the home is finished and the local building office signs off on it. You never own the lot during the build, so the lot-title rule above does not fit.
A construction-to-permanent loan fits a different path:
You own a lot, or you are buying one, and you hire a builder to build on it.
You are paying for the build with your own loan, not the builder's money.
You want the long-term loan set up before the first board goes up.
Not sure which path you are on? Ask who owns the land while the house is being built. Our guide to how a new-construction mortgage works walks through that route.
Single-close vs two-close: what is the difference?
Fannie Mae allows both setups. The difference is how many times you sign loan papers.
Single-close (one-time close) | Two-close | |
|---|---|---|
Closings | One closing covers the build and the long-term loan | One closing for the construction loan, a second for the long-term loan |
Loan papers | One set; the loan turns into the long-term mortgage when the home is done | Two separate sets; a new note is signed at the second closing |
Build time limit (Fannie Mae) | No single period over 12 months; 18 months total at most | The 12- and 18-month limits do not apply |
Can the lender change? | Same loan the whole way | The long-term lender can be a different lender |
Loan types at the end | Purchase or limited cash-out refinance | Limited cash-out or cash-out refinance |
Source: Fannie Mae Selling Guide B5-3.1-02 and B5-3.1-03, checked November 3, 2026.
How a single-close loan works
With one closing, you close on the construction loan and the long-term terms at the same time. Fannie Mae says the lender then manages paying the builder or suppliers during the build. When construction is complete, the loan turns into the long-term mortgage on its own.
Fannie Mae's guide sets a firm clock. No single construction period can be longer than 12 months, and the total cannot be more than 18 months. If the build runs longer, Fannie Mae says the loan has to be handled as a two-close loan instead.
After it converts, the long-term loan can run no longer than 30 years, not counting the build time.
How a two-close loan works
With two closings, you sign a construction loan first. The lot purchase can be part of it. When the home is done, you sign a brand-new long-term mortgage. Fannie Mae says the lender for that second loan can be a different lender than the one that paid for the build.
That freedom can help you shop. But two closings can also mean two rounds of closing fees. Ask each lender to list both sets of costs in writing before you choose.
One more rule from Fannie Mae: to take cash out at the second closing, you must have held legal title to the lot for at least six months before the long-term loan closes.
Can the rate or loan amount change during the build?
On a single-close loan, Fannie Mae allows a few terms to be changed before or at conversion: the interest rate, the loan amount, the loan term and the type of rate. The only rate-type change allowed is from adjustable to fixed. Any other change means the loan has to be redone as a two-close loan.
A higher loan amount is allowed only to cover documented higher building costs. So if the build goes over budget, you need receipts and paperwork, not just a request.
Rates can also move a lot while a home is built. Freddie Mac's weekly survey put the 30-year fixed rate at an average of 7.24% for the week of October 29, 2026, down from 7.32% the week before. Ask your lender exactly when your rate is set and what happens if rates change before conversion. Our post on when to lock your mortgage rate explains the trade-offs.
Will the lender check my credit and income again?
Often, yes. Fannie Mae says credit papers must be no more than four months old on the day the construction loan closes. Income, job and credit report papers must also be no more than four months old when the loan converts.
There is an exception. Those papers can be up to 18 months old at conversion if, at the first closing, the loan-to-value ratio was 95% or less and the loan got an Approve/Eligible result from Fannie Mae's Desktop Underwriter system. If those conditions were not met, the lender must pull fresh papers and qualify you again.
The home also gets looked at twice. The first appraisal can be no more than four months old at the construction closing. When the build is done, the appraiser completes an update and completion report. If that report says the value went down, the lender must order a new appraisal and qualify you again on the new numbers.
What this means for you: do not open new credit cards, change jobs or take on big new debt while the home is being built.
How is the down payment figured?
On a single-close purchase, Fannie Mae divides the loan amount by the lower of two numbers:
The purchase price, which is the cost of building plus the price of the lot.
The ""as completed"" appraised value of the lot and the finished home.
If you already owned the lot before the first construction draw, the loan is treated as a limited cash-out refinance, and the loan-to-value ratio is figured on the ""as completed"" appraised value alone.
What this means for new-construction buyers
Before you shop for a loan, figure out which kind of new home you are buying.
Buying in a builder's community: the builder usually owns the lot and pays for the build. You will most likely close once, on a regular purchase mortgage, after the home is finished. Ask when the builder expects the certificate of occupancy, because closing usually waits for it.
Building on your own lot: a construction-to-permanent loan may fit. Ask each lender whether it offers single-close, two-close or both, and get the build-time limits in writing.
Either way: compare lenders side by side. Our guide to the builder's lender vs your own lender shows what to line up.
Build times vary. Our post on how long it takes to build a house covers what slows a build down, which matters for a single-close loan's 18-month cap.
Common Questions
What is a construction-to-permanent loan?
It is a mortgage plan that pays for building a home and then becomes your long-term loan when the home is finished. Fannie Mae allows it with one closing or two closings. The borrower must hold title to the lot.
Do I need a construction loan to buy a home in a builder's community?
Usually not. In most builder communities, the builder owns the lot and pays for the build, and you close on a regular purchase mortgage once the home is done. A construction-to-permanent loan is mainly for building on a lot you own or are buying.
How long can the build take on a single-close loan?
Under Fannie Mae's rules, no single construction period can be longer than 12 months, and the total cannot be more than 18 months. If the build needs more time, the loan has to be handled as a two-close loan.
Can I change lenders between the build and the long-term loan?
On a two-close loan, yes. Fannie Mae says the lender for the long-term mortgage can be different from the lender that paid for the build. On a single-close loan, the same loan carries you from start to finish.
Will my credit be checked again before the loan converts?
Often, yes. Fannie Mae says income, job and credit papers must be no more than four months old at conversion, unless the loan met certain conditions at the first closing. In that case, they can be up to 18 months old.
Can my interest rate change on a single-close loan?
Fannie Mae allows the rate, loan amount, loan term and rate type to be changed before or at conversion. The only rate-type change allowed is from adjustable to fixed. Ask your lender how and when your rate is set.
Ready to take the next step?
Call 561-704-0091 to talk with a National House Search specialist, or Schedule a visit.
Related reading: New construction mortgage: how financing a new home works · Builder lender vs your own mortgage lender · How long does it take to build a house?
Sources: Fannie Mae Selling Guide B5-3.1-01 · Fannie Mae Selling Guide B5-3.1-02 · Fannie Mae Selling Guide B5-3.1-03 · Freddie Mac PMMS
This is general information, not financial, tax or legal advice. Figures checked November 3, 2026.