The quick read: A mini-perm is a short-term bank loan that carries a newly completed project through stabilization to a balloon payment; a construction-to-permanent loan converts once into long-term debt with the same lender. The mini-perm wins for non-multifamily builds, short holds and smaller deals; construction-to-permanent, or a forward commitment from a separate permanent lender, wins when locking the long-term rate before you build matters more.
Every construction loan needs a takeout, and the structure decides when the permanent lender and rate get fixed. Construction lending is interim financing whose repayment depends on the borrower obtaining permanent financing or finding a buyer, according to the Federal Reserve's Commercial Bank Examination Manual (section 2100.1). For sizing the gap between a construction balance and the permanent loan, see how multifamily construction loans lock the takeout.
SOFR: 3.87% as of September 23, 2026 (FRED SOFR) Bank prime loan rate: 7.00% as of September 21, 2026 (FRED DPRIME) 5-year Treasury yield: 4.83% as of September 22, 2026 (FRED DGS5) 10-year Treasury yield: 4.96% as of September 22, 2026 (FRED DGS10) Federal funds target range: 3-3/4 to 4 percent after a 1/4-point increase on September 16, 2026 (FOMC statement)
What is a mini-perm loan?
A mini-perm is a short-term bank loan that carries a newly completed project through lease-up and stabilization and ends in a balloon payment that a sale or permanent refinance must cover; the Federal Reserve's reporting instructions define it as a form of short-term financing for completed construction projects.
That definition sits in the Federal Reserve's FR Y-14Q instructions, where "Mini-Perm" is its own commercial real estate loan-purpose code in the stress-testing reports bank holding companies file. The OCC's Commercial Real Estate Lending handbook (version 2.0, March 2022) describes the same mechanism without the label: bank construction financing for the expected construction period, with the facility converting to bridge financing for the expected stabilization period. Any extension options, it adds, should be consistent with the expected construction time plus the projected absorption period.
The Fed's examination manual records that banks in the mid- and late 1980s began extending medium-term loans with maturities of up to seven years, which it calls mini-perms, to fill the void permanent lenders had left. A mini-perm defers the permanent-rate decision rather than making it: the balloon still has to be refinanced or repaid. Ask whether the bank's mini-perm converts the construction facility or is a new loan with its own fees and underwriting.
How does a construction-to-permanent loan work?
A construction-to-permanent loan is one loan that funds construction and then converts to long-term amortizing debt once completion tests are met, so there is no new permanent lender to qualify with; HUD's Section 221(d)(4) program is the federally insured multifamily version, with terms of up to 40 years.
HUD's program description says Section 221(d)(4) insures mortgages for new construction or substantial rehabilitation of multifamily rental or cooperative housing with 5 or more units, through FHA mortgage insurance for HUD-approved lenders; in FY2024 HUD insured 105 such projects with 17,434 units, totaling $2.5 billion. Under HUD's MAP Guide (March 2021 revision), the interest rate must be locked in by the time of Initial Endorsement, and the HUD note provides for the same or different interest rates for the construction and permanent periods, so both are set at closing rather than at conversion. The note carries a non-recourse provision as to the borrowing entity, though certain parties can be held personally liable for losses from "bad acts" and malfeasance. For HUD's process and timeline, see HUD 221(d)(4) vs 223(f).
Banks write single-close loans too. The FR Y-14Q instructions have banks report a combination construction-permanent loan as construction until construction is completed and a certificate of occupancy is obtained or principal amortization payments begin, whichever comes first. If a bank offers one, ask whether the permanent phase carries a fixed rate, a reset at conversion or a fresh round of underwriting.
How does a two-close loan with a forward commitment work?
A two-close structure pairs a construction loan from one lender with a separate permanent loan closed after completion, and a forward commitment lets that permanent lender commit to the takeout, and can lock the rate, before construction starts, while the construction lender still funds the build and carries the completion risk.
The OCC handbook separates two pre-completion takeouts. A standby commitment is back-up financing in case the borrower cannot obtain permanent financing, with fees usually required at commitment and more due if it funds. A forward commitment commits to refinance the construction loan upon completion and, almost always, lease-up, and a life insurance company frequently writes it. The handbook says forward commitments are in greater demand among borrowers in periods of rising interest rates.
Both agencies publish forward programs for apartments. Freddie Mac's Conventional Forwards product sheet (dated 09/25) offers unfunded forward commitments for new construction or major rehabilitation, with a forward term of up to 48 months with available extensions, a $10 million minimum, a 1.25x minimum debt coverage ratio and an 80% maximum loan-to-value. Fannie Mae's Multifamily Guide caps its unfunded forward commitment term at 30 months for construction and lease-up unless extended, and requires the lender to confirm the construction lender has agreed to issue a construction financing commitment. A forward cannot remove completion risk: the Fed's examination manual lists completing a project after takeout dates, which voids permanent funding commitments, among construction lending risks.
How do the three structures compare side by side?
The three structures differ mainly in timing: when the permanent lender is chosen, when the permanent rate is set, what test converts the loan and what it costs to leave early, so the table below compares them row by row on those terms rather than on a headline interest rate.
Table: Mini-perm vs construction-to-permanent vs two-close with a forward commitment
| Feature | Bank mini-perm | Single-close construction-to-permanent (HUD 221(d)(4)) | Two-close with a forward commitment |
|---|---|---|---|
| Feature Term after completion | Bank mini-perm Short stabilization term ending in a balloon, set per loan; 1980s mini-perms ran up to seven years (Fed examination manual) | Single-close construction-to-permanent (HUD 221(d)(4)) Up to 40 years (HUD) | Two-close with a forward commitment Freddie Mac forwards: fixed rate up to 15 years, floating rate up to 10 years |
| Feature Conversion trigger | Bank mini-perm Construction completion; the loan then runs to its balloon | Single-close construction-to-permanent (HUD 221(d)(4)) Completion: combination loans are reported as construction until a certificate of occupancy is obtained or amortization begins (Fed) | Two-close with a forward commitment Completion plus lease-up: Fannie Mae requires at least 90% of units physically occupied in each of the trailing 3 months, plus the committed DSCR and LTV |
| Feature Rate reset | Bank mini-perm Set in the loan agreement; ask whether it floats over SOFR or prime and resets at conversion | Single-close construction-to-permanent (HUD 221(d)(4)) Locked by Initial Endorsement; the note sets the same or different construction and permanent rates (HUD) | Two-close with a forward commitment Locked as of the forward commitment date (Fannie Mae), or the Treasury index locked early (Freddie Mac Index Lock) |
| Feature Prepayment | Bank mini-perm Negotiated; ask what applies before the balloon | Single-close construction-to-permanent (HUD 221(d)(4)) HUD permits, but does not impose, prepayment restrictions; ask the lender | Two-close with a forward commitment Freddie Mac forwards: defeasance or yield maintenance |
| Feature Recourse | Bank mini-perm Bank policy sets nonrecourse limits and guarantor requirements (Interagency Guidelines); ask when any guaranty burns off | Single-close construction-to-permanent (HUD 221(d)(4)) Note is non-recourse to the borrowing entity, with bad-act carve-outs (HUD) | Two-close with a forward commitment Ask the permanent lender; the construction loan's guaranty is negotiated separately |
| Feature Who offers it (lender type) | Bank mini-perm Banks | Single-close construction-to-permanent (HUD 221(d)(4)) HUD-approved lenders with FHA insurance; banks writing combination loans | Two-close with a forward commitment A construction lender plus Fannie Mae, Freddie Mac, a life insurance company or another permanent lender |
The bank recourse cell follows the Interagency Guidelines for Real Estate Lending Policies, which say construction and commercial loan policies should set limits on partial recourse or nonrecourse loans, guarantor support requirements and takeout commitment requirements.
Which structure carries the least rate risk?
The structure that fixes the permanent rate earliest carries the least rate risk: a HUD 221(d)(4) loan locks its rate by Initial Endorsement and a forward commitment can lock it before funding, while a mini-perm leaves the permanent rate to be set at the refinance after stabilization, at whatever rates prevail then.
Rates do move mid-build: the Federal Open Market Committee raised the federal funds target range by 1/4 point on September 16, 2026. On the FRED prints above, SOFR at 3.87% sat below the 5-year Treasury yield of 4.83% and the 10-year yield of 4.96%. A mini-perm floating over SOFR or the 7.00% prime rate pays the short-term index and keeps the reset risk. Locking early narrows that risk: Freddie Mac's product sheet calls the Treasury index "the most volatile part of the coupon" and offers an Index Lock to fix it before funding.
The two-close route without a forward commitment carries the most exposure, because the permanent rate and the permanent lender both stay open until the property stabilizes. Bank construction credit adds its own uncertainty: in the Federal Reserve's July 2026 Senior Loan Officer Opinion Survey, a significant net share of banks reported standards for construction and land development loans at the tighter end of their range, and a moderate net share reported weaker demand for those loans. That matters most for a mini-perm that converts the construction facility, where one bank holds the loan from the first draw through stabilization.
What do fees look like for each structure?
Fees track the certainty each structure buys: HUD charges application, inspection and mortgage insurance fees, agency forward commitments add standby and conversion-related fees before the permanent loan funds, and a bank mini-perm's costs sit in terms the bank sets itself, such as extension and exit fees, so ask for them in writing.
HUD's MAP Guide sets a $3 per $1,000 application fee on the requested mortgage and a $5 per $1,000 inspection fee on new construction. HUD's mortgage insurance premium for 221(d)(4) new construction is 25 basis points upfront and 25 basis points annually, cut from 65 and 65, for applications submitted or amended on or after October 1, 2025 that have not been initially endorsed, according to HUD's September 23, 2025 Federal Register notice.
On the forward side, Freddie Mac lists an application fee, a conversion assurance fee, a standby fee and a make-whole provision including breakage, without printing amounts on its product sheet, and Fannie Mae's Guide makes its standby fee due when the forward commitment is confirmed. The OCC notes that a standby commitment's fees and rate may be set to discourage the borrower from exercising it. For a mini-perm, ask the bank for its extension fee, any prepayment premium before the balloon, and whether conversion triggers a new commitment fee or appraisal.
When does a mini-perm beat a construction-to-permanent loan?
A mini-perm beats a construction-to-permanent loan when the property falls outside HUD and agency multifamily programs, when the plan is to sell or refinance soon after stabilization, or when the deal is below program minimums, because it keeps the permanent decision open until the building has real operating results.
Property type decides first. HUD's 221(d)(4) covers multifamily rental or cooperative housing, and Freddie Mac's Conventional Forwards cover garden, mid-rise, high-rise and build-to-rent communities, so an industrial, office, retail or hotel build cannot use those programs. Its options are a bank mini-perm, a bank combination construction-permanent loan or a separate permanent loan: the OCC names banks, life insurance companies, pension funds and CMBS as permanent sources, and says the nonbank loans usually feature terms of 10 years or more with fixed rates and are commonly nonrecourse.
Hold period comes second. Long-term permanent debt can carry prepayment terms, such as defeasance or yield maintenance on Freddie Mac forwards, and HUD lets lenders set prepayment restrictions, so a sale soon after stabilization can carry a real exit cost. A mini-perm's short term fits that plan if the bank's own prepayment terms are light; ask before signing. Size comes third: Freddie Mac's forwards start at $10 million, and a forward sizes the permanent loan before construction, then tests actual performance at conversion, while a mini-perm defers permanent sizing to a refinance on trailing results. Construction-to-permanent or a forward wins the other way: multifamily you plan to hold, a long-term rate that matters more than flexibility, and a committed takeout.
Table: Which takeout structure fits which plan
| Structure | Who offers it | Rate risk | Fees | Best when |
|---|---|---|---|---|
| Structure Bank mini-perm | Who offers it Banks | Rate risk Open until the refinance; ask whether it floats in the meantime | Fees Bank-set; ask about extension, exit and conversion fees | Best when Non-multifamily builds, short holds, deals below program minimums |
| Structure Single-close construction-to-permanent (HUD 221(d)(4)) | Who offers it HUD-approved lenders with FHA insurance | Rate risk Locked by Initial Endorsement | Fees Application and inspection fees plus a 25-basis-point MIP upfront and annually | Best when Multifamily you plan to hold on non-recourse long-term debt |
| Structure Two-close with forward commitment | Who offers it A construction lender plus Fannie Mae, Freddie Mac or a life insurance company | Rate risk Locked at commitment; finishing after the takeout date can void it | Fees Application, standby and conversion-related fees; make-whole or breakage | Best when Agency-eligible multifamily needing a rate lock before the build |
| Structure Two-close, permanent loan chosen at stabilization | Who offers it A construction lender, then any permanent lender | Rate risk Fully open until stabilization | Fees Two sets of closing costs | Best when Picking the permanent lender on actual results |
How do you get lenders competing for a construction loan and its takeout?
You get lenders competing for a construction loan and its takeout by sending one complete package, with budget, schedule, pro forma, sponsor history and the hold plan, so each lender type quotes the structure it actually writes; submit your construction deal to have it matched.
State the exit you intend, because the hold period is what separates a mini-perm answer from a construction-to-permanent one. YieldStack is a commercial mortgage brokerage. One submission is matched against 20,000+ loan programs. Every credit decision is made by the lender; YieldStack arranges the introductions and negotiates on the borrower's side, and no loan, rate, or closing is guaranteed. It costs Zero upfront to submit a deal and review offers; YieldStack's broker fee is 0.50–1.00% of the loan amount and is paid only at closing.
The bottom line
A mini-perm and a construction-to-permanent loan both solve the takeout; they differ in when the permanent lender and rate are fixed. The mini-perm keeps options open for non-multifamily builds, short holds and smaller deals, at the cost of a balloon and an unset permanent rate. HUD's 221(d)(4), with terms of up to 40 years and a rate locked by Initial Endorsement, and agency forward commitments lock long-term terms early, at the cost of program rules, fees and prepayment terms. Choose by property type and hold period first, then by the rate risk you will carry.