This structure is called a 'two-step' or 'two close' loan. We typically provides the construction financing with periodic draws.

Monthly interest payments are billed to the borrower. At completion, a 'take-out' permanent loan is obtained from the same bank or another source.

The two-step structure is commonly available and widely used. The principal disadvantages are:

There are two sets of closing costs (usually title insurance, documentation and loan fees).
Transfer or stamp taxes are not minimized.

Construction cannot begin until all requirements for the take-out financing are completed.

Your situation (employment, cash reserves, family situation) may change before your permanent loan closes, and you may no longer qualify for the loan.


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