6/25/2013. Construction-To-Perm Lending Rules. Comparing Fannie to Freddie. Why? How It Works. MortgageCurrentcy.com. New Construction Niche

Transcription

1 Construction-To-Perm Lending Rules Comparing Fannie to Freddie MortgageCurrentcy.com Why? New Construction Niche Do More Business with Builders Affiliation with Community Banks How It Works 6 Month Construction Loan Bank makes money Construction Interest/Fees Provide Approved File Copy of appraisal Copy of disbursement schedule 1

2 How it works Construction loan closed in borrowers name Bank approved builders Builder requests construction loan draw Buyer countersigns disbursement check Final inspection Close permanent loan and pay off construction loan Benefits Buyer controls draws Bank/Credit Union makes money Builder Alternative Line of Credit Create Unique Niche Marketing Your Niche 2

3 Lloyd Rutherford Fannie/Freddie Expert MortgageCurrentcy.com What You Will Learn Construction-to-Perm Rules Differences between Fannie & Freddie Rules Two-time closing transaction. Conversion of the construction financing to a permanent (end) loan. Construction lender and one with the permanent financing lender. Can be the same lender 3

4 Fannie Guidelines Two separate loan closings Construction financing (may include the purchase of the lot) Permanent financing (and pay off construction loan) Fannie buys loans for provide permanent financing Lender may be a different lender than the one providing the interim or construction financing Credit underwrite the borrower based on the terms of the permanent mortgage Fannie Guidelines May be closed and delivered to FNMA as a: A limited cash-out refinance transaction, or A cash-out refinance transaction Subject to the limited cash-out and cash-out refinance maximum LTV, CLTV, and HCLTV ratios Cash-out transaction rules: held legal title to the lot for at least six months prior to the closing of the permanent mortgage Standard cash-out refinance eligibility and underwriting requirements apply Manufactured homes, units in condominium projects or co-ops are not eligible. Fannie Guidelines-Appraisals Use Value provided by the appraiser Construction must be complete Certificate of occupancy Appraiser s certificate of completion Photograph of the completed property 4

5 Two separate loan closings Interim construction financing (and may include the purchase of the lot) Permanent financing upon completion of the improvements (and pays off the outstanding construction financing) Freddie buys loans used to provide the permanent financing The lender may be different lender than one providing interim or construction financing Credit underwrite the borrower based on rules of the permanent mortgage Closed and delivered to Freddie as a: Purchase (this is a variance from FNMA) A limited cash-out refinance transaction, or A cash-out refinance transaction Standard LTV, CLTV, and HCLTV ratios Freddie Guide If, prior to the closing of the Interim Construction Financing, the Borrower is... Then the transaction is a... And proceeds from the Interim Construction Financing may be used to... Not the owner of record of the land, or If the site-built home is on a leasehold estate, not the lessee of the leasehold estate Purchase transaction Purchase the land, or for a site-built home, acquire a leasehold interest in the land Pay construction costs of the site-built home For a Manufactured Home, acquire the Manufactured Home and pay construction costs, including costs to install and anchor the Manufactured Home on a permanent foundation system The owner of record of the land, or If the site-built home is on a leasehold estate, the lessee of the leasehold estate Refinance transaction Pay all transaction costs, such as Closing Costs, Financing Costs and/or Prepaids/Escrows Pay construction costs of the site-built home For a Manufactured Home, acquire the Manufactured Home and pay construction costs, including costs to install and anchor the Manufactured Home on a permanent foundation system on land owned by the Borrower 5

6 Section 24.5 and 24.6 of the Freddie Selling Guide. What constitutes a no cash-out refinance and a cash-out refinance. Special Considerations for Refinance Mortgages Type refinance Eligibility; Property type limits "No cash-out" refinance as described in Section 24.5 Eligible; property may be either site-built or Manufactured Home Cash-out refinance as described in Section 24.6 Eligible; property must be site-built home 24.5: Requirements for "no cash-out" refinance Mortgages (Effective 12/14/12) A "no cash-out" refinance Mortgage must meet the applicable requirements in Sections 24.2 and A "no cash-out" refinance Mortgage is a Mortgage for which the proceeds may be used only to: Pay off the first Mortgage, regardless of its age; for Construction Conversion Mortgages and Renovation Mortgages, the amount of the Interim Construction Financing secured by the Mortgaged Premises is considered an amount used to pay off the first Mortgage. However, paying off unsecured liens or construction costs paid by the Borrower outside of the secured Interim Construction Financing is considered cash out to the Borrower, if above the $2,000 or 2% of loan amount limit. Pay off any junior liens secured by the Mortgaged Premises, that were used in their entirety to acquire the subject property Pay related Closing Costs, Financing Costs and Prepaids/Escrows Disburse cash out to the Borrower (or any other payee) not to exceed 2% of the new refinance Mortgage or $2,000, whichever is less 6

7 24.6: Requirements for cash-out refinance Mortgages (07/23/12) A cash-out refinance Mortgage must meet the applicable requirements in Sections 23.4 and A cash-out refinance Mortgage must be an Accept Mortgage, an A-minus Mortgage or a Manually Underwritten Mortgage with a minimum Indicator Score Mortgages with Risk Class and/or Minimum Indicator Score Requirements, are eligible for delivery. A cash-out refinance Mortgage is a Mortgage in which the use of the loan amount is not limited to specific purposes. A Mortgage placed on a property previously owned free and clear by the Borrower is always considered a cash-out refinance Mortgage. At least one Borrower must have been on the title to the subject property for at least six months prior to the Note Date Construction Conversion Mortgage A newly built or constructed 1- to 4-unit site-built home, or A newly purchased Manufactured Home that has never been attached to a foundation. Prior to the start of construction or renovation work, the Borrower must own the land in fee simple or, for a sitebuilt home, have a leasehold estate meeting the requirements of Chapter 41. The Borrower may have acquired the land through a purchase, inheritance, gift or divorce settlement. Completion Status as of sale of the Mortgage to Freddie All improvements must be fully completed before the sale of the Mortgage to Freddie Mac For a Manufactured Home, the installation must be fully complete, including permanent utility connections and construction of any site-built improvements such as garages, decks, or porches, before the Mortgage can be sold to Freddie Mac as evidenced by a satisfactory completion report. For both site-built homes and Manufactured Homes, Sellers must provide evidence that the property is complete. Purchase Transaction Property Type Value Construction Conversion Mortgages 1- to 4-unit site-built home Value is the lesser of: The purchase price of the Mortgaged Premises (cost of land and total construction costs), or Appraised value of the Mortgaged Premises, as completed. 1-unit Manufactured Home Value is the lesser of: The purchase price of the Manufactured Home, plus the lowest purchase price at which the land was sold during the most recent 12- month period, or Appraised value of the Manufactured Home and land. 7

8 No Cash-out Refinance Transactions Value Property Type Land owned 12 months or more Land owned less than 12 months 1-4-unit site-built home When the land has been owned by the When the land has been owned by the Borrower Borrower for 12 or more months at the time of for less than 12 months at the time of the closing the closing date of the Interim Construction date of the Interim Construction Financing, the value is the lesser of: Financing, the value is: Appraised value of the Mortgaged Premises, as completed Appraised value of the Mortgaged Premises, as completed (see note below), or For Construction Conversion Mortgages, the cost of the land and total construction costs 1-unit Manufactured Home When the land has been owned by the Borrower 12 or more months at the time of the closing date of the Interim Construction Financing, the value is the lesser of: The purchase price of the Mortgaged Premises (cost of the Manufactured Home and appraised value of the land), or Appraised value of the Mortgaged Premises, as completed (see note below). When the land has been owned by the Borrower for less than 12 months at the time of the closing date of the Interim Construction Financing, the value is the lesser of: The purchase price of the Mortgaged Premises (cost of the Manufactured Home and the lowest purchase price of the land within the most recent 12-month period, or Appraised value of the Mortgaged Premises, as completed (see note below). Cash-out Refinance Transactions Value Property Type Land owned 12 months or more Land owned less than 12 months 1-4-unit site-built home When the land has been owned by the Borrower for 12 or more months at the time of the closing date of the Interim Construction Financing, the value is: Appraised value of the Mortgaged Premises, as completed When the land has been owned by the Borrower for less than 12 months at the time of the closing date of the Interim Construction Financing, the value is the lesser of: Appraised value of the Mortgaged Premises, as completed (see note below), or For Construction Conversion Mortgages, the cost of the land and total construction costs Note: If the Borrower acquired the land as a gift or by inheritance, the value of the land (regardless of the date of acquisition) will be the current appraised value of the land as reported on the appraisal. Any item that is included in the calculation of cost to construct the home must be commonly and customarily included in the cost to construct other homes in the area where the Mortgaged Premises is located. The cost to construct must not include items such as furniture, electronic and home entertainment equipment or other personal items. Summary and Comparison Fannie Freddie Use FNMA if looking to simply use appraised value regardless of length of ownership (unless seeking cash-out parameters which requires a minimum of six months ownership) Use FHLMC if looking to help someone purchase a vacant lot and affix a manufactured home onto the lot 8

9 To Sum It All Up Information is current as of June 2013 (Subject To Change) Fannie/ Check Lender Overlays Want More Information? to Set up Conference Call Subject Line: Conf. Call Construction/Perm Niche 9