As you get near the completion of building a brand new single family rental and you intend to keep it for monthly cash flow and appreciation, at some point you’ll need to replace your existing construction loan with a permanent one. The permanent loan is so-called by mortgage companies as rate lock expirationscompared to construction loan which is temporary but a permanent loan is simply another moniker for a mortgage.

You can apply for a mortgage most any time during the construction phase and even some construction lenders ask to see a copy of a preapproval letter from a mortgage company before construction will begin.

So you follow the bank’s suggestions apply for a home loan and as the construction nears an end, it will be necessary to firm up your mortgage application and finally lock in your interest rate. This is especially important if mortgage rates appear to be on the rise. If rates do go up while your loan is locked, you’re good. But you may not be good if you’re locked if the construction on the property won’t be finished until after your interest rate expires. What can you do?

If a lock is getting ready to expire and it’s not the mortgage company’s fault, and in this example it isn’t, you’ll need to get a loan extension. Most lenders offer such extensions for as little as a few days up to 30 days and even longer. Of course, an extension won’t be free. You may be expected to pay as much as one-quarter of a point if you need a 30 day extension. If it’s the construction lender’s fault you may be able to negotiate that the construction bank pay your extension fee. However, going past the construction date is probably not the fault of the bank but other factors caused by construction delays. Make sure you clearly understand what happens and who will be responsible for paying any extension fees at the outset and negotiate to have the fees paid by others if you were not at fault.