A construction to permanent loan combines your construction financing and long-term mortgage into a streamlined package, saving you time and money compared to obtaining two separate loans. Whether you are building a multifamily complex, an industrial warehouse, or a mixed-use development, understanding how these loans work is critical to protecting your returns and avoiding costly refinancing gaps.
This guide covers everything borrowers need to know about construction-to-permanent financing in 2026, including close structures, rates, requirements, and the conversion process. If you are planning a ground-up project or in the construction phase, the strategies below can help you lock in favorable permanent financing.
For borrowers exploring different construction financing paths, our vertical construction and horizontal construction programs offer competitive terms tailored to your project type.
What Is a Construction-to-Permanent Loan and How Does It Work?
A construction-to-permanent loan starts as a construction loan and automatically converts into permanent mortgage financing once the building is complete. Instead of applying, qualifying, and closing on two separate loans, borrowers can secure their long-term rate and terms before breaking ground.
During the construction phase, you typically make interest-only payments on the funds that have been drawn. The lender disburses money in stages (called "draws") as construction milestones are completed and verified by inspectors. Once a certificate of occupancy is issued and the property meets stabilization thresholds, the loan converts to its permanent phase with fully amortizing payments.
The key advantage is certainty. You know your permanent rate, your permanent terms, and your permanent lender before you pour the first foundation. This eliminates the refinancing risk that keeps many developers up at night: the possibility that rates spike or credit tightens before your construction project is finished.
For commercial projects, construction-to-perm loans are available through banks, credit unions, SBA programs, and select non-bank lenders. Loan amounts typically range from million to million or more, depending on the lender and property type.
Should You Choose a One-Time Close or Two-Time Close Structure?
The one-time close is the better choice for most borrowers who want simplicity, cost savings, and rate certainty, while the two-time close gives you more flexibility to shop for permanent financing after construction is complete.
With a one-time close (also called a single-close), you close once at the start of your project. Construction and permanent terms are bundled into a single set of loan documents. When construction ends, the loan automatically converts to permanent with no additional closing, no re-qualification, and no new fees.
With a two-time close, you obtain a standalone construction loan first, then close on a separate permanent loan ("takeout loan") when construction is complete. This means two sets of closing costs, two appraisals, two rounds of underwriting, and re-qualification at the time of the second closing.
When one-time close makes sense:
- You want to lock in today's permanent rate before potential increases
- You prefer a single set of closing costs (saving 1% to 2% of the loan amount)
- You want guaranteed permanent financing without re-qualification risk
- Your project timeline is predictable
When two-time close makes sense:
- You believe rates will decline during your construction period
- You want maximum flexibility to shop permanent lenders after construction
- Your construction lender offers better construction-phase terms than permanent lenders
- You want to separate the construction risk from the permanent financing decision
Use our commercial mortgage calculator to compare monthly payments under both structures at different rate scenarios.
What Are Current Construction-to-Permanent Loan Rates in 2026?
Construction-to-permanent loan rates in 2026 generally range from 6.0% to 8.5%, depending on the loan structure, property type, borrower strength, and market conditions. One-time close fixed rates are running between 6.5% and 8.0% for most commercial projects, while two-time close borrowers may find permanent takeout rates as low as 6.25% for strong deals.
Here is how rates break down by program:
- One-Time Close (Bank Portfolio): 6.50% to 8.00% fixed; construction phase often priced at Prime + 0.50% to Prime + 1.50%
- Two-Time Close (Permanent Takeout): 6.25% to 7.75% fixed for 5 to 10 year terms
- SBA 504 Construction-to-Perm: 6.00% to 7.50%, with the CDC second mortgage portion at below-market fixed rates
- Mini-Perm Bridge: 7.00% to 9.00% floating during stabilization
- Agency Permanent Takeout (Fannie/Freddie): 5.75% to 7.00% for stabilized multifamily
- CMBS Takeout: 6.25% to 7.50% for stabilized commercial properties
Key rate factors include your LTV ratio, debt service coverage ratio (check yours with our DSCR calculator), property type, and borrower strength. Multifamily projects command the lowest rates, while specialty types carry premiums of 25 to 75 basis points.
Rates have moderated compared to 2024 as the Federal Reserve has eased monetary policy, though spreads remain elevated relative to pre-2022 levels.
What Property Types Qualify for Construction-to-Permanent Financing?
Most income-producing commercial property types qualify for construction-to-permanent loans, with multifamily and industrial projects receiving the most favorable terms from lenders.
Multifamily developments account for roughly 35% of all construction-to-perm loan volume, driven by strong rental demand and agency takeout options. Industrial and warehouse projects make up 22% of volume, while mixed-use developments represent about 18% of activity.
Here is a breakdown of how lenders view each major property type:
- Multifamily (apartments, senior housing): Most lender appetite; lowest rates; agency permanent options available; typical construction period 14 to 24 months
- Industrial/Warehouse: Strong demand from lenders; quick construction timelines of 8 to 14 months; favorable cap rates support permanent conversion
- Mixed-Use (residential over retail/office): Moderate appetite; lenders focus on the residential income component; 16 to 24 month construction periods
- Retail: Selective lending; pre-leasing requirements of 60% to 70% common; lenders favor grocery-anchored or necessity-based tenants
- Office: Most challenging in 2026; lenders require significant pre-leasing (70%+) and strong sponsorship; construction period can extend 18 to 28 months
- Self-Storage: Growing lender interest; shorter build times of 8 to 14 months; performance track record increasingly important
For specialized construction projects, explore our vertical construction financing for mid-rise and high-rise developments, or horizontal construction programs for site work and infrastructure.
What Are the Qualification Requirements for a Construction-to-Permanent Loan?
Borrowers typically need a credit score of 680 or higher, a minimum down payment of 10% to 30%, a projected DSCR of 1.15x to 1.30x, and demonstrated construction or real estate experience to qualify for a construction-to-permanent loan.
Lenders underwrite these loans more conservatively than standard permanent financing because they absorb both construction risk and long-term credit risk. Here are the key benchmarks:
Financial Requirements:
- Minimum credit score: 680+ for most programs (650+ for SBA)
- Net worth: Equal to or greater than the loan amount for most bank programs
- Post-closing liquidity: 10% to 15% of the total project cost
- Down payment: 10% (SBA 504) to 30% (life company) depending on program
Project Requirements:
- Detailed construction budget with contingency reserves (typically 5% to 10%)
- Fixed-price or guaranteed maximum price (GMP) construction contract
- Licensed, bonded general contractor with relevant experience
- Approved building permits and entitlements
- Environmental Phase I assessment (Phase II if warranted)
- Market study or feasibility analysis for larger projects
Experience Requirements:
- Most lenders require at least one completed project of similar size and type
- First-time developers may need an experienced partner or guarantor
- Track record of on-time, on-budget project delivery is a significant advantage
For a deeper look at commercial loan down payment requirements, including strategies to reduce your equity contribution, see our detailed guide. You can also use our DSCR calculator to verify your projected debt service coverage meets lender minimums.
How Does the Conversion Process Work from Construction to Permanent?
The conversion involves completing construction, obtaining a certificate of occupancy, meeting stabilization requirements, and either automatically converting (one-time close) or closing on new permanent financing (two-time close).
Here is a step-by-step breakdown:
Step 1: Construction Completion (Month 0) The general contractor notifies the lender that construction is substantially complete. The lender orders a final inspection to verify the project matches approved plans. Any punch-list items must be addressed.
Step 2: Certificate of Occupancy (Month 0 to 1) The local building authority issues a certificate of occupancy (CO) or temporary certificate of occupancy (TCO), confirming the building is safe for occupancy.
Step 3: Stabilization Period (Month 1 to 9) The property must reach a stabilization threshold before conversion, typically 85% to 90% occupancy for 90 consecutive days. During this period, the loan remains in its construction or mini-perm phase with interest-only payments.
Step 4: Final Appraisal (Month 3 to 9) The lender orders an "as-stabilized" appraisal to confirm the property's value supports the permanent loan amount. For two-time close loans, this determines your new loan terms.
Step 5: Conversion/Closing (Month 4 to 12)
- One-time close: The loan automatically converts per the original loan documents. No new closing, no new fees, no re-qualification. Your rate and terms were locked at origination.
- Two-time close: You close on the new permanent loan, pay closing costs, and the proceeds pay off the construction loan. You must requalify based on current financials.
For projects that need additional time to lease up, a commercial bridge loan can serve as interim financing between construction completion and permanent loan qualification.
What Is a Mini-Perm Loan and When Should You Use One?
A mini-perm loan is a short-term financing bridge (typically 2 to 5 years) that provides post-construction financing while the property stabilizes, buying you time to qualify for permanent financing at the best possible terms.
Mini-perm loans are commonly used when:
- The property has not yet reached the occupancy threshold required for permanent financing
- The borrower wants time to season the property's income history before locking in permanent terms
- Market conditions are unfavorable for long-term rate locks and the borrower wants to wait
- The construction lender's maturity date is approaching and an extension is not available
Mini-perm loan characteristics:
- Term: 2 to 5 years (most commonly 3 years)
- Rate: Floating, typically SOFR + 200 to 350 basis points
- Amortization: Interest-only or partial amortization
- Prepayment: Flexible, often with minimal or no penalty after year one
- LTV: Up to 75% of as-is value
- DSCR: 1.00x to 1.10x minimum (lower threshold than permanent)
This strategy works best when you have strong conviction that the property will stabilize within the loan term. The risk is that rates rise or the property underperforms, making the permanent refinance more expensive.
For permanent loan options once your property is stabilized, our team can match you with agency, CMBS, life company, or bank permanent programs.
Ready to discuss your construction-to-permanent financing options? Contact our team for a free consultation and quote, typically delivered within 2 hours during business hours.
How Can You Reduce Closing Costs on a Construction-to-Permanent Loan?
The most effective way to reduce closing costs is choosing a one-time close structure, which can save 1% to 2% of the total loan amount by eliminating the second round of fees associated with a two-time close.
Closing costs typically range from 2% to 4% for one-time close deals, and 3.5% to 6% for two-time close transactions. Here is where the savings come from:
One-time close savings:
- Single origination fee (saves 0.50% to 1.00%)
- One appraisal instead of two (saves ,000 to ,000)
- One set of legal and title fees (saves ,000 to ,000)
- One set of recording and government fees
- One rate lock fee instead of two
Additional strategies to reduce costs:
- Negotiate origination fees, especially on larger loans (M+)
- Request the lender cover the appraisal cost as a relationship incentive
- Bundle your construction and permanent financing with the same bank for loyalty discounts
- Close at month-end to reduce per-diem interest charges
- Compare at least 3 to 5 lender proposals to identify the most competitive fee structures
What Mistakes Should You Avoid When Converting Construction to Permanent Financing?
The biggest mistake is failing to plan your permanent takeout before starting construction, which can leave you scrambling for expensive bridge financing or accepting unfavorable terms under time pressure.
Here are the most common pitfalls and how to avoid them:
1. Not locking your permanent rate early enough Waiting to address permanent financing until construction is nearly complete exposes you to significant rate risk. A one-time close locks your rate before groundbreaking. For two-time close, consider a forward rate lock 6 to 12 months before conversion.
2. Underestimating the stabilization timeline Realistic lease-up for multifamily is 6 to 12 months; for office or retail, it can be 12 to 24 months. Build adequate reserves and ensure your construction loan maturity covers a conservative stabilization scenario.
3. Ignoring the re-qualification risk in two-time close deals If your financial situation changes between closings (new liabilities, decreased income, credit issues), you may not qualify for the permanent loan you expected. One-time close eliminates this risk entirely.
4. Overlooking prepayment penalties on the permanent phase Many permanent loans include yield maintenance, defeasance, or step-down penalties. Understand these terms before locking in, especially if you might sell or refinance within 5 to 7 years.
5. Skipping the construction contingency budget Without a 5% to 10% contingency reserve, cost overruns may force supplemental financing at unfavorable terms, complicating permanent conversion. Lenders typically require contingency reserves as a condition.
6. Choosing a lender based solely on rate Construction-to-perm loans involve a long-term relationship. A lender's draw process, inspection requirements, and flexibility during construction challenges matter as much as the rate.
Speak with our construction lending specialists to build a financing strategy that avoids these common pitfalls.
What Does the Construction-to-Permanent Loan Market Look Like in 2026?
The 2026 market is cautiously optimistic, with construction loan originations recovering from the 2023 to 2024 slowdown and permanent takeout options expanding as rate uncertainty declines.
Commercial construction activity has gradually recovered since the Fed began easing in late 2024. Loan originations rose to approximately billion in 2025, up from billion in 2024, though still below the billion peak in 2022.
Key market trends shaping construction-to-permanent financing in 2026:
- Moderating rates: The Fed's rate cuts have brought some relief, with permanent takeout rates down 50 to 100 basis points from 2023 highs. However, rates remain elevated compared to the sub-4% environment of 2020 to 2021.
- Selective lending: Banks are more cautious with construction lending, particularly for office and speculative retail. Multifamily and industrial projects continue to attract the most competitive terms.
- Growing mini-perm demand: Many 2022 and 2023 vintage construction loans are maturing, creating demand for mini-perm bridges while borrowers wait for more favorable permanent rates.
- SBA 504 popularity: The SBA 504 program's below-market second mortgage has made it increasingly popular for owner-occupied construction projects under million.
- Increased equity requirements: Lenders are generally requiring 5% to 10% more equity than pre-2022 norms, particularly for two-time close structures.
Frequently Asked Questions About Construction-to-Permanent Loans?
Below are the most common questions we receive from borrowers evaluating construction-to-permanent financing.
Can I convert my existing construction loan into permanent financing if my original lender does not offer it? Yes. If your construction lender does not provide permanent takeout options, you can refinance with a different permanent lender once construction is complete and the property is stabilized. This is essentially a two-time close scenario. Our team works with over 6,000 lenders and can match your project with the right permanent loan program.
What happens if construction takes longer than expected? Most construction loans include one or two extension options (typically 6 months each) for a fee of 0.25% to 0.50%. If extensions are exhausted, you may need a bridge loan to avoid a maturity default.
Do I need a new appraisal when converting from construction to permanent? For one-time close loans, lenders typically require a completion certification but not a full new appraisal. For two-time close transactions, a new "as-stabilized" appraisal is required, costing ,000 to ,000.
Can I use a construction-to-permanent loan for a renovation or gut rehab project? Yes, many lenders offer construction-to-perm structures for substantial renovation projects. The property must typically require ,000 or more in improvements, and the permanent phase is underwritten based on post-renovation value.
What is the minimum down payment for a construction-to-permanent loan? Minimum down payments range from 10% (SBA 504) to 30% (life company programs). Most bank construction-to-perm loans require 20% to 25% equity. See our guide on commercial loan down payment requirements for strategies to minimize equity.
How long does it take to close a construction-to-permanent loan? One-time close loans typically take 45 to 90 days from application, as both phases are underwritten simultaneously. Two-time close construction loans can close in 30 to 60 days, with the permanent phase taking an additional 30 to 60 days.
Are construction-to-permanent loans available for mixed-use properties? Yes. Mixed-use properties combining residential, retail, and office are eligible. Lenders scrutinize commercial components more carefully and may require higher pre-leasing thresholds. Our vertical construction program specializes in mixed-use developments.
Can I get a construction-to-permanent loan with no experience in development? It is possible but challenging. Most lenders require at least one completed project of similar scope. First-time developers should partner with an experienced co-sponsor or guarantor and hire a proven general contractor.
Sources and References?
Key data sources used in this guide.
- Federal Reserve Economic Data (FRED), Construction Lending Trends, 2025
- Mortgage Bankers Association, Commercial Origination Survey, Q3 2025
- U.S. Small Business Administration, SBA 504 Program Guidelines, 2025
- Fannie Mae and Freddie Mac Multifamily Lending Guidelines, 2025
- American Bankers Association, CRE Lending Conditions Report, Q4 2025
- CoStar Group, Commercial Construction Pipeline Report, January 2026
Ready to start your construction-to-permanent loan application? Contact Clear House Lending today for a free consultation. Our team will analyze your project, identify the best loan structure, and connect you with competitive lenders from our network of over 6,000 commercial financing sources.