Learning Center

FAQs: Construction-to-Permanent Financing

Construction-to-Permanent (C-to-P) financing allows lenders to replace the interim construction financing borrowers use to construct a new residence with a long-term mortgage that can be delivered to Fannie Mae. We’ve compiled some of our most common questions on the offering below.

FAQs updated August 7, 2019

Construction Products Overview

Learn More

Single-Closing Transaction

  • Q1.
    Can the construction-to-permanent transaction be used to finance manufactured homes?

    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.

  • Q2.
    Is it possible for a borrower who started a single-closing transaction as a Limited Cash-Out Refinance (LCOR) to change to a single-closing cash-out-refinance?

    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.

  • Q3.
    Can a single-closing LCOR be used when the borrower already owns the lot and needs financing to pay for the construction of a home on that lot?

    Yes. 

  • Q4.
    Is the three-day right of rescission required on a single-closing LCOR transaction?

    Yes. Permanent financing guidelines must be followed, so right of rescission must be provided.

  • Q5.
    When a borrower is using a single-closing transaction for a construction project, the initial Desktop Underwriter® (DU®) submission had a 30-year term, but the borrower wants a loan term of 15 years instead. Does the loan have to be re-rerun in DU?

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

  • Q6.
    May borrowers do a single-closing transaction when they would like to tear down an existing house on a lot they own and build a new home?

    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.

  • Q7.
    Can the construction-to-permanent transaction be used to finance condos or co-ops?

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

Two-Closing Transaction

  • Q1.
    May a borrower do an LCOR on a two-closing transaction and pay off a builder for overruns?

    If the overruns can be documented as construction costs, then the costs can be included in the loan amount.

  • Q2.
    How long must a borrower own the land before it can be eligible for a cash-out transaction for a two-closing construction-to-permanent transaction?

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

Limited Cash-Out Refinance

  • Q1.
    May a borrower finance a construction loan and a second mortgage taken for cost overruns as an LCOR?

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

  • Q2.
    May a borrower be reimbursed for self-financed cost overruns by financing the construction loan and cost overruns into an LCOR?

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

  • Q3.
    If the borrower started an LCOR construction loan, and would now like to deed the lot to the builder and treat the transaction as a purchase, does the lot have to be deeded to the builder prior to the application?

    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.