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What Happens to My Construction Loan When the Home Is Finished?

Conversion, final draw, certificate of occupancy and the first real mortgage payment.

It either converts into your permanent mortgage, or it gets paid off by a separate mortgage you close on. Which one depends on the loan you chose at the beginning.

The end-of-build sequence

  1. Final inspections pass and the jurisdiction issues a certificate of occupancy. See inspections.
  2. Final walkthrough with us, and a punch list if anything needs attention. See the final walkthrough.
  3. Final appraisal, which most lenders order on the completed home.
  4. Final draw and lien waivers released.
  5. Conversion or payoff.
  6. First principal and interest payment, typically the following month.

If you have a construction-to-permanent loan

Conversion is largely administrative. There's no second closing and no second set of title and origination fees. Your payment shifts from interest-only on the drawn balance to full principal and interest, and your rate becomes the permanent rate, which many programs let you lock earlier. See construction-to-permanent loans.

If you have a construction-only loan

You close a separate mortgage that pays off the construction loan. That means a second application, a second underwriting, a second appraisal and a second set of closing costs, at whatever rates exist that month. Start that process well before completion, not after. See construction loan vs mortgage.

Things to line up before completion

  • Homeowner's insurance effective at closing, replacing builder's risk coverage
  • Utilities transferred into your name
  • Escrow setup for taxes and insurance, and an understanding that the tax portion may be estimated on land value initially. See property taxes on new construction
  • Warranty documentation and manufacturer paperwork collected at closing. See warranty coverage

One thing worth flagging

Your first escrow analysis may be based on the land-only tax bill, which means the payment can rise once the completed home is assessed. Ask your lender how they're estimating it so the increase isn't a surprise.