Understanding CP Loans

CP loans are very common in the home building industry, but what does that mean to you, the homebuyer?

A Construction-to-Permanent or CP loan combines a traditional mortgage with a short-term construction loan to make the process easier and more manageable for you. A mortgage is a loan on an existing structure and cannot be used to purchase land or build a house. A construction loan is a short-term loan that covers these expenses but when separate you will have to pay fees and closing costs on each loan. A CP loan is a three-stage system that allows you to financed the construction of your new home, lock in rates and consolidate fees.   

During the first stage, you will work with a Mortgage Loan Originator who will explain loan options and needed documentation, submit your application and notify you of the bank's decision. 

Stage two coincides with the construction of your home and is when loan funds are disbursed based on your loan agreement and draw schedule.  Funds needed during building are disbursed for labor and materials that have been completed or already-installed. Your lender will require an inspection to verify that the work has been completed before releasing the funds and a schedule will be pre-determined for these disbursements and inspections. Some companies will require you to approve each draw and funds will be released within three business days, other companies will have you pre-approve the draw schedule so that funds can be released at the pre-approved draw schedule. Either way, your lender will provide you with a monthly statement advising you of interest accrued on any funds that were disbursed in the previous month. 

The final stage occurs after your home is complete. This is when your loan is converted to a traditional mortgage and you will begin your regular mortgage payments. 

SeaGate Homes wants to help make the building process as smooth as possible for you, so we have compiled a list of preferred lenders to help you choose the best fit for your needs. All CP loans and lenders are not the same, we encourage you to ask potential lenders about their specific products when determining the best loan for you.