It’s easy to get tunnel vision when your new home is almost complete. You can picture the custom cabinets, the natural light pouring through the windows, and finally organizing everything in that dream walk-in closet. While those exciting details keep you motivated during construction, it’s just as important to understand how your financing works—especially how your permanent mortgage loan is finalized with Preferred Rate.
At Preferred Rate, we offer a two-time close construction loan, which differs from a construction-to-permanent loan. With a two-time closing, your first loan covers the cost of land (if applicable), building materials, labor, and required permits. Like any mortgage, getting pre-approved for your construction loan is a smart first step. It helps you understand your budget, buying power, and financing options before breaking ground. Our experienced Mortgage Advisors guide you through this process to ensure your new construction financing aligns with your long-term financial goals.
The construction phase typically lasts 12 to 18 months. During this time, you’ll make interest-only payments based on funds that have been disbursed through scheduled “draws.” These draws function similarly to a line of credit, releasing funds in stages as your builder completes milestones. Interest payments are calculated on the amount drawn and can often be paid monthly or rolled into the loan, depending on your loan structure.
As construction nears completion—usually about 45 to 60 days out—Preferred Rate begins the process of transitioning you into your permanent mortgage. This final loan replaces your short-term construction financing and sets you up for long-term homeownership.
Collecting Updated Documents & Credit Review
To move forward with your permanent financing, we’ll collect updated documentation, including recent bank statements, pay stubs, and any information regarding changes in employment or income. Because the qualifying guidelines apply again at this stage, we will also run a new credit report. Maintaining strong credit and avoiding large purchases or new debt during construction is key to ensuring a smooth transition to your final mortgage.
Appraisal
In a two-time close construction loan, a new appraisal may be ordered before finalizing your permanent mortgage. If your home appraises for more than the original projected value, you may have additional flexibility when structuring your loan. Depending on eligibility, options such as conventional, FHA, or VA financing may allow you to leverage increased equity. Your Preferred Rate Mortgage Advisor will review all available options and help determine what makes the most financial sense for your situation.
Final Loan Approval
Once your appraisal and documentation are complete, your file moves through underwriting for final approval. Your permanent loan options—such as FHA loans, VA loans, or conventional mortgages—will be reviewed again to confirm the program you selected still fits your goals.
At this stage, your loan functions similarly to a refinance, transitioning you into a traditional mortgage with principal and interest payments. You may choose from popular fixed-rate mortgage options, including 30-year, 20-year, 15-year, or 10-year terms, depending on your financial strategy.
Many borrowers choose to lock in their mortgage rate before construction begins with a long-term rate lock for added peace of mind. If market conditions shift during construction, your Preferred Rate advisor will discuss available options so you can make an informed decision about your interest rate before closing.
Closing on Your Permanent Mortgage
Our goal is to schedule your final closing shortly after your home passes its final inspection. Closing typically takes place at a title company, where you’ll sign final documents and pay any remaining closing costs. Be sure to bring a valid, government-issued ID, such as a driver’s license or passport.
Certificate of Occupancy
Before your loan can fund, the home must receive a Certificate of Occupancy from your local municipality. This confirms the property meets all required building codes and is safe for move-in. While it may not always be a physical document, it is a critical step in completing your new construction home loan process.
Move Into Your New Home
In most cases, your loan funds the day after signing. Once funding is complete, you’ll officially be able to move into your new home. Your mortgage payments—now including principal and interest—will begin according to your loan terms.
At Preferred Rate, we’ve streamlined the construction loan and permanent financing process to make building and closing on your dream home as smooth as possible. If you have questions about construction loans, new home financing, mortgage pre-approval, or permanent loan options, our team is here to help every step of the way.
