FAQs: Construction-to-Permanent Financing

Yes, manufactured homes are eligible for both one-close and two-close construction-to-permanent transactions. Additionally, Fannie Mae’s Manufactured Housing guidelines allow for new construction financing, including lot and unit purchase, site preparation, and site installation. It also allows the addition of structures associated with the construction contract, such as landscaping, hardscaping, porches, decks, and garages. See Selling Guide B5-2-03, Manufactured Housing Underwriting Requirements for more information about new construction and manufactured homes.

No. Single-closing transactions are only for purchase or LCOR.  Some borrowers may want to convert the transaction to a two-closing transaction and meet the criteria for a cash-out refinance under the two-closing transaction guidelines. In these cases it would be acceptable to restructure the transaction to accommodate the request. However, the borrowers must have held legal title to the lot for at least six months prior to the permanent loan closing to be eligible for a cash-out refinance.

Yes. 

Yes. The final DU submission should match the final terms of the loan as it is delivered to Fannie Mae.

Yes. No restrictions are associated with tearing down existing structures to rebuild. The loan cannot be delivered to Fannie Mae until the construction is completed and the terms of the construction loan have converted to permanent financing.

Only detached condo units are eligible for construction-to-permanent financing. All other condos and co-ops are ineligible for construction-to-permanent financing.

If the borrower’s credit documents are more than 120 days old at the time of conversion to permanent financing (or more than 12 months old, for qualifying transactions*), income, employment, and credit report documents must be updated (no more than 120 days prior to conversion to permanent financing), and the borrower requalified based on the updated information. 

Asset documentation does not need to be updated unless:

• upon requalification, the borrower’s required reserves have increased, or 
• the borrower is bringing additional funds to the transaction.

*Note: Credit documents may be up to 12 months old at the time of conversion to permanent financing if the representative credit score is >=700, the LTV /CLTV/HCLTV <=95%, and the loan received an Approve/Eligible DU recommendation.
 

Yes. Unless the original asset documentation has not yet expired at conversion, updated asset documentation is required when the borrower brings additional funds to the transaction. The additional funds need to be documented and must come from an eligible source.

Additionally, updated asset documentation would also be required if a borrower is requalified, and more reserves are required than were at the time of the original qualification. The full amount of the reserves needs to be verified.

No. The transaction would have to be converted to a two-closing transaction.

Yes. Documented construction cost overruns occurring outside of the interim construction loan may be included in the loan amount for a two-closing construction- to- permanent transaction as long as the overrun costs are paid directly to the builder at closing.

The borrower must have held legal title to the lot for at least six months prior to the closing of the permanent mortgage.

Yes. The lender must document that the proceeds of the second mortgage were only used to pay for the cost of construction.

No. The borrower must meet the cash-out refinance construction-to-permanent financing eligibility since they are receiving funds back for the cost overruns.

Yes. For a purchase transaction, the borrower may not be the owner of the lot at the time of the first advance of the interim construction financing in a single-closing transaction.