Construction-to-Permanent Mortgage

Frequently Asked Questions, Answered.

Interested in learning more about construction-to-permanent (CPerm) loans? Here are some frequently asked questions, along with their answers. Click below for more information about traditional mortgages.

The Construction/Permanent Loan is very popular for individuals building a new home. This loan combines the features of a construction loan with permanent financing. With these two features combined, only one loan closing is necessary. This type of loan saves you time and added expense that would typically be associated with two closings.

Enjoy the advantages of using one loan for both your construction and permanent financing. You not only save on time and closing costs, you also benefit from avoiding later costs and upward rate changes because your loan is finalized. The interest rate at the time of closing is the rate in effect during both the construction period as well as the beginning of the permanent loan. The construction term is 12 months. Check with our office for maximum terms.

Terms and Conditions: Interest-only payments for the first 12 months based on amount drawn, followed by 360 monthly payments. Example: Monthly payments of $787.74 per $165,000 borrowed. This payment does not include amounts for taxes and insurance premiums, if applicable, and the actual payment obligation will be greater. Property insurance required, including flood insurance, if applicable. Offer subject to change. Offer subject to credit and collateral approval.

Your loan amount is determined by several factors, which include but are not limited to LTV (loan-to-value) and debt-to-income ratios, credit score and cash reserves.

Typically, LTVs are limited to 80%, but under approved conditions, they extend to 90%.

Generally, your lot needs to be paid for, and its equity will serve as part or all of the down payment. However, check with your mortgage originator to see whether your lot purchase can be included in the construction loan.

Typically, 20% of the total value of your lot plus the construction cost is how much you’ll need. For example, if your lot value is $40K plus construction costs of $160K, for a total of $200K, you’d need 20% of $200K, or $40K.

Yes, a general suggestion would be to have at least 20% of the construction costs in cash reserves. For example, if the cost is $160K, your cash reserves should be $32K.

Yes, in order to ensure that the project is staying on budget, all funds are held by the bank and disbursed according to our inspection process. Customer funds are disbursed first to keep your interest costs down. No interest is charged on funds collected from the customer.


Yes. Your lot should be free of debt. However, check with your mortgage originator to see if it can be included. Based on the balance you owe and the overall size of your project, we may be able to include paying off your lot in your new mortgage.

Yes. However, you should discuss this with your mortgage originator to see how it could impact your down payment requirements.

Yes, our fixed-rate loan products feature fixed rates for the life of the loan. However, on our adjustable-rate products, rates are only fixed for the initial period, currently 5 or 7 years.


Your first interest payment will be due on the first day of the second month after your closing. For example, if you were closing on April 30, your first payment would be due on June 1st. Interest is calculated based on the amount of money you’ve drawn during the month.

Yes. You’ll need to provide written qualifications for us to consider this request. Examples of written qualifications could include situations where the borrower is employed in the construction field and/or has a family member who is a plumber, electrician, etc. If you’ve acted as a self-contractor on a previous home, that information is relevant here too.


Yes, but all contractors must have a valid contractor’s license from the State of Tennessee. We require contracts between all builders and homeowners.


To determine a market value for your project, appraisers use plans, descriptive materials lists and your builder’s contract/cost estimates to determine a market value for your project.

We require a Home Federal Bank checking account to be opened for duration of the construction project. We will deposit construction funds into this account at your direction and in accordance with our inspection results.

We require two inspections—at the footer and final stages. Otherwise, inspections occur on an as-needed basis.

Inspections are only conducted to monitor completed progress on your project. Our inspectors are NOT checking for quality of work or conformity to building codes.


Yes. Draws can be requested as work progresses.

Our goal is to have your inspection completed within 48 hours of the request. Upon completion of the inspection, funds will be made available.

No. To maintain your amortization schedule, your monthly amortizing payments will start on the 13th month, even if your project is incomplete. However, interest will continue to accrue based on the amount of funds you have drawn, not on the full amount of the loan.

You may draw remaining funds after final inspection and use as you wish, or we can reduce your loan amount and monthly payment to reflect your smaller balance.

Yes. Our construction lending department can advise you as to when and how to apply these funds and what to know about your options for payment reduction.

Yes, immediately after closing, you’ll need to open a Home Federal Bank checking account for the construction project. We’ll deposit construction funds into this account at your direction and in accordance with our inspection results. Next, you’ll need to have your Builders Risk Insurance policy and foundation-spotting survey forwarded to our Construction Lending Department, which can be reached at 865-546-0330. This follow-up call will alert us to your first required inspection when your footers are ready to be inspected.

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