What Is a Construction-to-Permanent Loan?

Short answer

A construction-to-permanent loan pays for building a home in draws and then converts into a regular long-term mortgage, and under Fannie Mae's single-closing rules no single construction period can exceed 12 months and the total cannot exceed 18 months (Selling Guide B5-3.1-02, as of November 2026). It comes in two versions: a one-time close, with one set of closing documents, and a two-time close, with a separate construction loan and a new mortgage at the end.

Definition

A loan that funds the lot and/or construction of a home during the build, then becomes the permanent mortgage once the home is complete and has a certificate of occupancy.

Worked example

Example only: a buyer purchases a lot and signs a builder contract. Under Fannie Mae's purchase rules, the LTV is the loan amount divided by the lesser of lot price plus construction cost, or the as-completed appraised value. If lot plus build costs $700,000 and the as-completed appraisal is $720,000, the lender uses $700,000. A $560,000 loan is 80% LTV.

One-time close vs two-time close

• One-time close: one application, one closing. The loan is underwritten on the permanent terms up front. Under B5-3.1-02, the rate, amount, term and amortization can only be modified at or before conversion, and the only amortization change allowed is adjustable to fixed.
• Two-time close: a short-term construction loan first, then a separate permanent mortgage when the home is done. You pay two sets of closing costs and requalify at the end, but you are not locked into terms chosen a year earlier. Builds longer than 18 months need this route under Fannie Mae rules.

Fannie Mae also says the borrower must hold title to the lot, attached condos and co-ops are not eligible, and all work and liens must be paid before the loan is delivered.

Documents that expire during the build

The appraisal must be dated within four months before the note date, and a completion report (Form 1004D) is required at the end. If it shows the value dropped, you need a new appraisal and requalification. Income, employment and credit documents can stay valid up to 18 months at conversion only if LTV, CLTV and HCLTV are 95% or less and DU gave Approve/Eligible at closing; otherwise expect updated documents. Job changes during the build matter.

See our construction loans page for programs, including options for self-employed borrowers, subject to credit approval.

In South Florida

In South Florida the build itself is regulated hard. Miami-Dade and Broward are in the High-Velocity Hurricane Zone of the Florida Building Code, whose 8th Edition (2023) took effect December 31, 2023; a 9th Edition is expected on or around December 31, 2026 (as of November 2026). Before work starts, F.S. 713.13 requires a recorded Notice of Commencement, and a construction lender must record it before disbursing funds to the contractor. Permit or inspection delays eat into the 12/18-month window, so pick a builder with a realistic schedule. Check the flood zone and elevation certificate early, since they shape the design and insurance cost.