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Kay Kim
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  • Boise, ID
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construction to perm loan

Kay Kim
  • Real Estate Agent
  • Boise, ID
Posted Jul 23 2022, 10:39

Hello BP family,  hope everyone is staying cool in this heat. 

I have some newbie question here. 

Can I get a construction to perm loan for a SFR? If so, what kind of permanent loan should I get after the construction is done. Also, I heard something about "loophole" which is an idea of starting with second home loan then switch to rental property. As little as I know that I shouldn't get a second home loan for a property which intend to rent it out full time, though. So confusing. I would like to stay away from anything illegal process which could potentially lead to mortgage fraud. Little help, please?

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Chris Seveney
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Chris Seveney
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Replied Jul 23 2022, 10:42

@Kay Kim

Talk to @Upen Patel - I believe they have a program where it may be a construction then a permanent (two closings).

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Naz Hossain
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Naz Hossain
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Replied Jul 23 2022, 11:17

What type of construction are you looking at? 

New development or renovation? How are you funding the construction? If you are doing a value add, you can refinance into a regular investment loan which wouldn't need you to look for a "loophole"


If you are trying to get the lowest possible rates, you are probably a little late. But you can buy down you rates if you like. 

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Upen Patel
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Upen Patel
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Replied Jul 23 2022, 20:09

@Chris Seveney Thanks for the tag.

@Kay Kim Yes, you can get a construction loan, it depends on the specifics of the transaction. You don't want to indicate that its a 2nd home loan for the construction and then refi into an investment loan. We would do the construction and end loan, so I will cause a lot of issues with underwriting and you can potentially get in trouble for misstating on the initial construction loan. LTV on a 2nd home construction is not going to be any lower than an investment loan.

Keep in mind that you will have to qualify for the construction loan, even if it is an investment construction, without any rental income.

Hope this is helpful.

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Jack Mawer
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Jack Mawer
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Replied Jul 25 2022, 07:13

Kay, you can definitely start with a construction/bridge loan and then convert to a rate-term or cash-out refinance with better terms and long-term debt. 

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Kay Kim
  • Real Estate Agent
  • Boise, ID
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Kay Kim
  • Real Estate Agent
  • Boise, ID
Replied Jul 26 2022, 14:46
Quote from @Chris Seveney:

@Kay Kim

Talk to @Upen Patel - I believe they have a program where it may be a construction then a permanent (two closings). 

@Chris Seveney, Thanks for the referral. 

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Kay Kim
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Kay Kim
  • Real Estate Agent
  • Boise, ID
Replied Jul 26 2022, 14:52
Quote from @Naz Hossain:

What type of construction are you looking at? 

New development or renovation? How are you funding the construction? If you are doing a value add, you can refinance into a regular investment loan which wouldn't need you to look for a "loophole"


If you are trying to get the lowest possible rates, you are probably a little late. But you can buy down you rates if you like. 

Thank you Naz, I have a land and a builder set up already for constructing single family home.  I am trying to avoid two closing. So, I should just refi after the construction done and conversion it to  perm investment loan? 

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Kay Kim
  • Real Estate Agent
  • Boise, ID
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Kay Kim
  • Real Estate Agent
  • Boise, ID
Replied Jul 26 2022, 14:56
Quote from @Jack Mawer:

Kay, you can definitely start with a construction/bridge loan and then convert to a rate-term or cash-out refinance with better terms and long-term debt. 

Hi Jack, Thanks for the information. you manetioned rate-term means, do you mean ARMs?

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Jack Mawer
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Jack Mawer
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Replied Jul 26 2022, 14:59
Quote from @Kay Kim:
Quote from @Jack Mawer:

Kay, you can definitely start with a construction/bridge loan and then convert to a rate-term or cash-out refinance with better terms and long-term debt. 

Hi Jack, Thanks for the information. you manetioned rate-term means, do you mean ARMs?


 No, a rate-term refinance. This is designed to where you are not getting additional cash out, but you are getting near the amount you have to payoff for the existing loan with a better rate.

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Kay Kim
  • Real Estate Agent
  • Boise, ID
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Kay Kim
  • Real Estate Agent
  • Boise, ID
Replied Jul 26 2022, 15:01
Quote from @Naz Hossain:

What type of construction are you looking at? 

New development or renovation? How are you funding the construction? If you are doing a value add, you can refinance into a regular investment loan which wouldn't need you to look for a "loophole"


If you are trying to get the lowest possible rates, you are probably a little late. But you can buy down you rates if you like. 

Hi Naz, thanks for your input. I have a land and a builder set up to construct a single family house for rent. I definetly need the construction loan to start with, right?

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Kay Kim
  • Real Estate Agent
  • Boise, ID
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Kay Kim
  • Real Estate Agent
  • Boise, ID
Replied Jul 26 2022, 16:13
Quote from @Upen Patel:

@Chris Seveney Thanks for the tag.

@Kay Kim Yes, you can get a construction loan, it depends on the specifics of the transaction. You don't want to indicate that its a 2nd home loan for the construction and then refi into an investment loan. We would do the construction and end loan, so I will cause a lot of issues with underwriting and you can potentially get in trouble for misstating on the initial construction loan. LTV on a 2nd home construction is not going to be any lower than an investment loan.

Keep in mind that you will have to qualify for the construction loan, even if it is an investment construction, without any rental income.

Hope this is helpful.


@Upen Patel, Thanks for the generous advice, If I may, could I ask few more questions? 

so, I should put upfront to the lender that this will be for rental property when I apply for the construction loan rather than just apply 2nd home loan ( which is only for primary residence ), correct?

Also, shouldn't the lender approve the builder as well, prior to appove the loan to a borrower?

what would be the flow of process for the construction to perm ( investment loan) ?  will this loan term have just one closing? 

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Naz Hossain
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Naz Hossain
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Replied Jul 28 2022, 21:23
Quote from @Kay Kim:
Quote from @Naz Hossain:

What type of construction are you looking at? 

New development or renovation? How are you funding the construction? If you are doing a value add, you can refinance into a regular investment loan which wouldn't need you to look for a "loophole"


If you are trying to get the lowest possible rates, you are probably a little late. But you can buy down you rates if you like. 

Hi Naz, thanks for your input. I have a land and a builder set up to construct a single family house for rent. I definetly need the construction loan to start with, right?

 Kay, you can get what they call a single close. A lot of lenders do it where they do a construction loan and then turn it into a long term after you're done in 1 close. I have yet to do one but i do know they exist. I have spoken to a few folks who have done that

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Kay Kim
  • Real Estate Agent
  • Boise, ID
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Kay Kim
  • Real Estate Agent
  • Boise, ID
Replied Jul 29 2022, 04:09
Quote from @Naz Hossain:
Quote from @Kay Kim:
Quote from @Naz Hossain:

What type of construction are you looking at? 

New development or renovation? How are you funding the construction? If you are doing a value add, you can refinance into a regular investment loan which wouldn't need you to look for a "loophole"


If you are trying to get the lowest possible rates, you are probably a little late. But you can buy down you rates if you like. 

Hi Naz, thanks for your input. I have a land and a builder set up to construct a single family house for rent. I definetly need the construction loan to start with, right?

 Kay, you can get what they call a single close. A lot of lenders do it where they do a construction loan and then turn it into a long term after you're done in 1 close. I have yet to do one but i do know they exist. I have spoken to a few folks who have done that


 Naz, thank you for sharing the information with me. I appreciate it.

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