- Many times in Sonoma County and the state of California there are bare lots available for sale, but unfortunately there are no lot loans for the buyer to purchase the lot. As a result FHA, and VA have made a product that allows a buyer to purchase the lot, and finance the construction costs, all in one mortgage. The mortgage is called a construction to permanent loan. This one time close, construction to permanent loan, is available for all build-able lots in the Cities of Sonoma county, and we service the entire state of California, and Colorado as well. Remember that this is not a loan that Fannie Mae or Freddie Mac offers. Borrower’s must be credit approved and qualified.
- The FHA construction to permanent loan is a great option that provides the short term financing of a construction loan with the stability of a long term FHA fixed rate permanent loan. As a result there is no need to re-qualify for the permanent loan after the construction process is complete.
- For manufactured, modular, and stick built properties:finance the construction, lot purchase, and permanent mortgage all with a single one-time close loan. As a result No re-qualification. No second appraisal.
- The borrower must contract with a builder to complete all work on the property. That builder must be a licensed GC.
Construction To Permanent Loan Program Highlights
- Max LTV 96.5% through FHA or 100% LTV through VA(not including the funding fee)
- No Payments due from the borrower during construction
- 15 and 30 year fixed rates
Escrow Account Requirements for Construction To Permanent Loan
- At closing, after funds are disbursed to cover the purchase of the land, the balance of the mortgage proceeds must be placed in an escrow account to be disbursed as construction progresses.
- The Mortgagee must obtain the Borrower’s written authorization for each draw prior to disbursing funds to the contractor.
- After completion of construction, the construction escrow account must be fully extinguished. Because of this any remaining funds must be applied to the outstanding principal balance of the permanent Mortgage.
Required Documentation For Closing Construction To Permanent Loan
In addition to standard FHA documents, the following documents must be used for the construction to permanent loan:
- A Construction Rider to the Note, and Construction to permanent Loan Agreement. These construction documents may be in any form acceptable to the Mortgagee, but they must provide that all special construction terms end when the construction loan converts to a permanent Mortgage. After conversion, only the permanent mortgage terms (based on standard documents) continue to be effective. Because of this the permanent Mortgage is eligible for FHA mortgage insurance.
- A disclosure issued to the Borrower explaining that the Mortgage is not eligible for FHA mortgage insurance until after a final inspection or the issuance of a certificate of occupancy by the local governmental jurisdiction, whichever is later.
- Either, a fully executed contract agreement between the builder and the Borrower, which includes the contractor’s price to build; or documentation of the actual costs of construction where the Borrower is acting as the general contractor.
- Documentation of land acquisition or land ownership.
- A payoff statement and evidence of the actual payoff if mortgage proceeds are used to purchase or pay off debt on the land.