I am on 10 acres and was not allowed to leave the home I was living in when I built my new home. But that was strictly county issues, I did not seek permanent financing. They gave me something ridiculous like 60 days to get it gone. I laughed at them, but somehow it actually did work out...I mean what were they really going to do?
Now my neighbor, with same acreage does have a stick built and a MH on same land...not sure what the difference could possibly have been, to be honest! Perhaps they were grandfathered and the rules changed between then and when I built...would be my guess.
For the lender to have assured them it would be no problem from a lending standpoint, I would think the RIGHT thing to do would be to book inhouse.
If it's left as a construction loan until saleable, then I would calculate an amortization myself and make payments as if it were. The above statement sounds as if that's one of their issues, but there is no law against making payments and if you make more than the accrued interest it's going to go to principal.
Also, I'm not sure why there would be more closing costs involved if the original loan was to be converted to perm vs extending the CL portion a year and converting...that's not making much sense to me...other than you are running a risk of market rates rising by doing so.
My opinion only. Not legal advice.
Say you'll haunt me - Stone Sour