There are primarily two different types of loans that most customers use to pay for their new homes.  One is called a construction to permanent mortgage and the other is called an end loan.


End loans are typically used when a customer is buying a completed home or is unable to obtain a construction to permanent mortgage for any reason.  Construction to permanent mortgages are almost always used when a builder is building a new home on a customer’s lot.



An end loan or traditional mortgage usually has the customer providing a down payment and then paying for the balance of the home at the closing after the home is completed.  At this closing, both the land and the home is transferred to the customer.


A construction to permanent mortgage (also known as a draw loan or progress payment loan) is different.  The customer makes a construction deposit and then takes ownership of the land immediately with an upfront closing.  Once the customer owns the land, the customer or bank pays the builder in stages as the various parts of the construction process are completed and verified by inspection.  Generally, these stages mark the completions of foundation, framing, rough mechanicals installations, etc.  When the home is completed, a certificate of occupancy is granted by the town, the bank does it’s final inspection and the customer has completed the final inspection before possession, the bank/ customer then releases the final payment to the builder. There is no second closing and after the final payment is released, the customer begins making the agreed mortgage payment.


Benefits of a construction to permanent mortgage can include the following:

Opportunity for lower property taxes.  Since the only transfer that occurs is for the lot only with no house, there is no record of the total house price.  Since the contract is private between the builder and customer, it does not become a part of any public record.  The assessor has no record of  popular features such as hardwood floors, appliance upgrades, upgraded lighting fixtures and countless other items which increase cost and property assessment.  While nothing can guarantee a lower assessment, we have found this stategy to be very effective in reducing the property tax burden in most cases .


New York State transfer taxes are about .04% of the amount being transferred.  This means a $1200 fee on a $300,000.00 home as compared to $240 fee on a $60,000 lot without the home (because the lot is transferred to the customer before the home is built).junior-bank-jobs

The customer has greater control with a construction to permanent mortgage because they own the land that the home is being built on.


The customer can deduct the cost of interest paid during the construction process in the year it was paid.  If the builder finances the project, he must increase the cost of the home to cover this.  These additional costs are not deductible to the homeowner.


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