Permanent end loan refers to short term financing of real estate construction projects which are then followed by long term financing, called a "permanent end" loan. This type of loan is usually issued to a buyer of the new construction project upon its completion.
Construction loans normally work together with permanent end loans.
- The land developer gets a $10 million construction loan to build a 50 homes in a housing tract.
- When a home becomes ready to sell, a buyer goes to their local bank or other lending agency and gets a $300,000 permanent end loan from their lender to purchase one of the new homes from the builder.
- The builder then uses $200,000 or all of the money from the sale of the home that he just sold towards paying off his construction loan. The remaining $100,000 he earned becomes profit unless he applies it to the construction loan as well.
The lenders disbursement of the permanent end loan to the buyer is contingent upon the builders completion of the new home construction and, in most instances, the construction lender requires that the proceeds from the sale needs to be applied toward the preceding construction loan (his interim financing).