Quick overview

Converting a construction loan to a permanent mortgage (often called an “end loan” or “construction-to-perm” conversion) moves you from short-term, draw-based financing to a long-term amortizing mortgage. Lenders treat the conversion as a new underwriting event: they confirm the property is finished, re-check your financial profile, and ensure the loan meets their permanent-mortgage standards.

I’ve worked with builders and buyers for more than 15 years. In practice, the lender’s checklist, timing, and fees vary widely. Knowing the common lender requirements—and preparing documentation ahead of time—reduces surprises at closing and helps avoid costly delays.

(For related reading on construction loan closeouts and draw processes, see Construction Loan Closeout and Construction Loans 101: Draws, Inspections and Interest Handling.)

Why lenders reassess before conversion

Lenders take on long-term risk with the permanent loan. During construction the collateral (the house) is incomplete and the loan is short-term; after completion the property’s market value and occupancy status determine long-term safety for a mortgage lender. Therefore lenders typically require:

  • A certified final inspection and occupancy certificate (if required by local code).
  • A full appraisal showing the completed home’s market value.
  • Updated borrower underwriting: credit report, income verification, debt-to-income (DTI) calculation, and asset documentation.
  • Title review to ensure no liens remain and that required releases (for example, of mechanics’ liens) are provided.

These requirements protect both you and the lender and align with standard mortgage underwriting practices (Consumer Financial Protection Bureau: https://www.consumerfinance.gov/).

Typical lender requirements — detailed checklist

Below is a concise, practical checklist of what most lenders will ask for when converting a construction loan to a permanent mortgage. Requirements may vary by bank, credit union, or mortgage investor (Fannie Mae, Freddie Mac, FHA, VA).

  1. Final inspection and certificate of occupancy
  • Proof the home is complete and complies with local building codes. Many lenders require a local building department Certificate of Occupancy (CO) or an approved final inspection report from a licensed inspector or municipal official.
  • For modular or manufactured components, documentation that installation meets HUD or state standards may also be required (HUD: https://www.hud.gov/).
  1. Full appraisal of the completed property
  • An appraiser will value the finished home. Lenders use the appraisal to calculate loan-to-value (LTV). If the appraised value is below projections, you may need a larger down payment or a change to mortgage terms.
  1. Updated income and employment verification
  • Most lenders will re-verify income with recent pay stubs, W-2s or tax returns, and employment verification. Self-employed borrowers should provide up-to-date profit-and-loss statements and tax returns.
  1. Credit report and score review
  • Lenders run a new credit report. Many conventional lenders prefer a minimum credit score in the 620–680 range for standard construction-to-perm products, but agency and portfolio lenders vary. FHA and VA programs have separate credit guidelines (check with your lender).
  1. Debt-to-income (DTI) and qualifying ratios
  • Underwriting will recalculate DTI using final mortgage payment: many lenders prefer DTI at or below about 43% for qualifying as a conventional mortgage, though exceptions exist depending on compensating factors and loan programs (Consumer Financial Protection Bureau: https://www.consumerfinance.gov/).
  1. Title search and lien releases
  • Final title exam must show clear title. Lenders commonly require releases of contractor draws and evidence that subcontractor liens have been settled or bonded off.
  1. Flood, hazard, and insurance documentation
  • Lenders verify homeowners insurance coverage (and flood insurance if property is in a flood zone). The mortgage cannot close without adequate hazard insurance in place.
  1. Final construction costs and invoices
  • Lenders often require documentation of total construction costs, paid invoices, and contractor lien waivers to confirm no unpaid obligations remain against the property.
  1. Mortgage program-specific conditions
  • If you applied for an FHA construction-to-perm loan, or a VA or USDA-backed product, expect additional program-specific forms and inspections. Confirm with your mortgage officer early to understand those requirements (HUD/FHA: https://www.hud.gov/).
  1. Cash reserves and assets
  • Some lenders require liquid reserves to cover several months of payments, especially if the borrower’s DTI or credit is borderline.

Costs and fees at conversion

Expect costs similar to a refinance or new mortgage closing: appraisal, title update fees, recording fees, and closing/settlement charges. Some lenders offer a true single-close construction-to-permanent product (one-time close) that bundles construction and permanent financing into one closing and may reduce total closing costs; others require a separate end-loan closing, which duplicates certain fees (see One-Time Close Construction Loan and Construction-to-Permanent Loan: From Groundbreaking to Refinance).

  • Appraisal: typically several hundred dollars.
  • Title endorsement / update: varies by state.
  • Recording fees and transfer taxes: state/local specific.
  • Lender conversion or processing fee: depends on lender and whether conversion was built into the original loan.

Ask for a Loan Estimate for the permanent mortgage at least three days before closing to compare true costs across offers (Consumer Financial Protection Bureau).

When can you switch lenders?

You can shop and refinance with a different lender at conversion, but that turns a conversion into a refinance and may add steps:

  • New lender will require a new application, appraisal, and underwriting.
  • You may face duplicate title and recording fees, prepayment penalties (if in your construction note), or timing delays.
  • If rates have moved in your favor, switching can still make sense — but run the numbers, including closing costs and any fees from the original lender.

Common problems and how to avoid them

  • Delayed final inspections or missing CO: stay on top of the municipal inspection schedule and secure permits early.
  • Unpaid subcontractor liens: require lien waivers at each draw and confirm final lien releases before closing.
  • Appraised value shortfall: mitigate by controlling construction budgets and documenting upgrades; sometimes sellers or builders agree to price adjustments.
  • Credit deterioration during construction: avoid new large debts, late payments, or opening new credit lines before conversion.

Timelines: how long does conversion take?

Conversion timing depends on whether you have a one-time close or a separate end-loan. Typical timelines:

  • One-time close: permanent loan begins automatically or after a brief administrative step once construction is complete — often faster and with fewer duplicative fees.
  • Two-close/conversion: expect 30–60 days for underwriting, appraisal, title work, and closing once construction is complete.

Pro tip from practice: plan at least 60–90 days of buffer after expected completion to allow for appraisal scheduling, final inspections, and clearing any title issues.

Practical example

A client completed a 7-month build. We scheduled the appraisal and final inspection two weeks before builder completion, then completed documentation updates (pay stubs, asset statements) during the last draw. Because the original loan included a one-time close, the permanent mortgage closed with minimal extra costs; the borrower avoided paying duplicate title fees and saved several hundred dollars in closing costs.

Frequently asked operational questions

  • Is conversion automatic if I met construction draw milestones? No. Lenders require final underwriting—automatic conversion is rare unless explicitly structured in the original loan documents.
  • Will interest rate change at conversion? Yes. Construction loans usually carry variable or higher short-term rates; the permanent loan rate will be set at conversion or during the permanent-loan closing, depending on the product.
  • Can I lock the permanent rate during construction? Some lenders offer a rate-lock for the permanent loan at or before conversion (sometimes for a fee). Put this in writing early if rate certainty matters.

Practical checklist to give your lender (templates)

  • Certificate of Occupancy or final inspection report
  • Final appraisal (ordered by lender) — schedule early
  • Final paid invoices and lien waivers from contractor and subcontractors
  • Updated pay stubs (30 days), W-2s or tax returns (2 years for self-employed)
  • Bank statements showing reserves and down payment sources
  • Homeowners insurance binder and flood insurance (if required)
  • Latest credit authorization (signed) so lender can pull credit

Sources and guidance

Final professional tips

  1. Communicate early and often with your loan officer—confirm conversion triggers and any built-in conversion fees at loan origination. 2. Keep pristine draw records and lien waivers to avoid last-minute title issues. 3. Consider one-time close products if you want fewer administrative steps; if rates are down near completion, shopping at conversion may still save money but do the math.

Disclaimer

This article is for educational purposes and reflects common lender practices as of 2025. It is not financial or legal advice. For personalized guidance, consult your mortgage officer, a licensed mortgage broker, or a real estate attorney.