Construction-to-Perm FHA One Time Close Construction Financing for Today's Market
AGENDA Overview Construction-to-Perm Guidelines Eligibility Requirements Documentation Requirements (Closing and Endorsement) Builder Approval Structuring the Deal Draw Process Draws and Disbursements HUD-1 Settlement Statement Benefits
Overview Combines the Following Features: 1. A construction loan, which is a short-term interim loan for financing the cost of construction, and 2. The traditional long-term permanent mortgage that involves only one closing 3. Is considered a purchase transaction, for mortgage insurance and LTV purposes, and is made directly to the borrower 4. Standard FHA guidelines apply: 3.5% down payment or Land in Lieu of down payment and 6.0% seller concessions 5. No interest payments due during construction by either the builder or the buyer 6. Draws managed by experienced construction department 7. Works for lot purchase or existing land 8. No additional appraisal after closing 9. No additional credit pull/qualifying after closing 10. Borrowers can build anywhere
Guidelines Borrower cannot be their own contractor. Borrowers must be contracted with a builder in order to construct the home Borrower may not act as his/her own general contractor Sales price cannot change after closing. Borrower must provide a fully executed copy of contract agreement, which includes the builders price to build Builders may only used the fixed-cost method for agreements Any change orders (upgrades) after construction begins will out of pocket expense for borrower If builder is not owner of the land, provide separate land agreement
Guidelines Lot Ownership If purchased in past 6 months- provide settlement statement showing acquisition cost If borrower owns lot free-and-clear, document date of ownership and that there are no liens against the property Land equity Land equity may be used in lieu of down payment Owned less than 6 months/purchasing at closing - If value is lower than acquisition cost, value must be used in determining maximum mortgage amount Owned greater than 6 months - Or received as an acceptable gift in which case the value may be used instead of the cost If the builder owns the land - the total acquisition cost for the maximum mortgage purposes equals the borrowers purchase price
Guidelines Calculating the base loan amount The maximum mortgage amount is determined by applying the LTV limits to the lesser of the appraised value or the acquisition cost Unless, owned greater than 6 months Construction time 130 days construction period If construction period is exceeded, per diem charges will apply to the builder ($75 per day, per diem) Locks The permanent mortgage loan interest rate is locked at the time of closing with 150 day lock Note: Loan should not be locked while being processed. Use the float option for disclosures to prevent using construction days during processing.
Guidelines Payments Amortization must begin no later than the first of the month within 60 days from the date of 1) final inspection or 2) issuance of certificate of occupancy, whichever is later. Loans are not eligible for insurance until completion of the home UFMIP is remitted as normal, but not endorsed until completion Disclosure provided to borrower, with closing package, explaining 1. That the loan is not eligible for FHA mortgage insurance until after A) final inspection or B) issuance of a certificate of occupancy, whichever is later and 2. That FHA has no obligation until the mortgage is endorsed for insurance
Guidelines Draws & Disbursement Written approval from the borrower must be obtained before each draw payment is provided to the builder Closing documents include standard FHA documents plus Construction Rider or Allonge to the Note, and Construction Loan Agreement Loan Modification Notary sent to borrower to sign loan modification documents Modification confirms the existence of a permanent loan and that corresponding amortizing interest on the mortgage loan shall commence or commenced with 60 days of the property being 100% complete
Guidelines Endorsement documents include: A certification, signed by the borrower after conversion to the permanent loan, that the mortgaged property is free and clear of all liens other than the mortgage Verification that the construction loan has been fully drawn down All property related requirements for new construction
Builder Approval Completed Builder Approval Package Signed General Authorization Letter (included with Builder Profile and Registration packet) Acceptance letter from HUD acceptable 10- Year Warranty company Copy of State Builder License or Registration; Copy of Occupational or Business License; Copy of Declarations Page: Worker s Compensation Insurance & General Liability Insurance; Bank and Supplier Reference Copy of Principal(s) Resume; Copy of Articles of Incorporation; and 2009 Tax Returns business tax returns (for business) or personal tax return (for sole proprietor). 2010 Tax Returns business tax returns (for business) or personal tax return (for sole proprietor). If extension was filed, provide 2010 financials. 2011 Year-to-Date Profit and Loss and Balance Sheet
Builder Approval Step 1 Step 2 Step 3 Builder completes builder application Submits to American Southwest Mortgage (AMSW) AMSW reviews package for all items Submits Builder Package to investor Investor conducts reference checks, verifications, etc. Can take up to two weeks Step 4 Investor notifies AMSW of builder approval
Draws & Disbursements Program designed to reimburse builders after various stages of completion. Work is done, then costs are reimbursed. Borrower must sign off on all draws. No exceptions. Inspections to be done at each draw phase. Builder must submit Draw Request Form (Investor will provide this form to the builder after the loan has closed) Draws are typically disbursed within 48 hours of receiving all required documentation. Disbursements can be made either wire transfer or a check via USPS.
Draw Schedule Item $ 100,000.00 Land Cost $ 25,000.00 Total Cost $ 125,000.00 Holdback $ 12,500.00 Funds available $ 112,500.00 DISBURSEMENT SCHEDULE Funds Available Draw Amount Total Paid Out Closing Land paid in full at time of $112,500.0 $25,000.0 $25,000.0 Stage 1 Funding Immediately after $87,500.0 $8,750.0 $33,750.0 Stage 2 Funding $78,750.0 $11,812.5 $45,562.5 Stage 3 Funding $66,937.5 $22,089.3 $67,651.8 Stage 4 Funding $44,848.1 $21,527.1 $89,178.9 Stage 5 Funding $23,321.0 $23,321.0 $112,500.0 Holdback/Retainage Release - $12,500.0 $125,000.0
Draw Criteria Stage 1 Funding Stage 2 Funding Stage 3 Funding Investor will disburse 10% of available construction funds immediately after purchase. Excavation / Plans / Permits / Site Prep / Other miscellaneous costs Investor will disburse 15% of available construction funds at completion of following: Primary plumbing rough-in Footings, foundation & slab Investor will disburse 33% of available construction funds at completion of following: Framing & Sheathing Exterior Doors Windows Set Wiring rough-in Secondary plumbing rough-in Primary heating rough-in Secondary heating rough-in Fireplaces Roofing Approved frame inspection Stage 4 Funding Stage 5 Funding Investor will disburse 48% of available construction funds after completion of following. Insulation Sheetrock / Plaster Interior Trim & Doors Interior plumbing Investor will disburse remainder of available construction funds at completion of following: Furnace / AC or Evap. cooler Stucco, Veneer, Siding Exterior Painting Exterior Concrete Resilient Flooring / Carpeting Plumbing Fixtures Final Electrical Fixtures Appliances Finish Grade and Clean-Up Certificate of Occupancy An inspection must be completed by either a home inspector, original appraiser or engineer. They will certify that each item has been satisfactorily completed per the funding stage requirements. A signed inspection form by the borrower, builder and inspector, accompanied by digital pictures are necessary to show confirmation of completion.
Lender Calculation Worksheet Used to assist in constructing builders costs and builders net Must be signed by borrower, lender and builder Includes all fees except inspection fees Inspection fees are paid by the builder Inspections are order by the investor
File Flow Originator to Complete Loan Calculation Worksheet Borrower Approval Underwriting Doc Prep Closing/Funding Draw 3: Inspection Required Draw 2: Inspection Required Draw 1: Soft Cost (after purchase), Investor Purchases Loan Land Payoff at Closing Draw 4: Inspection Required Draw 5: Inspection Required Loan Modification Contingency Release 31 DAYS
HUD 1 Settlement Statement
Builder Benefits Expand their potential and free up credit lines for other projects - Loans are made directly to the home buyer offering builders the flexibility and the capital to start new projects. Qualify, Close then Complete - As lending guidelines continue to tighten, the risk of losing would-be buyers represents tremendous risks for builders today. With the FHA One-Time Close, home buyers are qualified, closed, and then construction begins. Buyer fallout becomes ancient history - That's right, just like Eight Tracks, Atari and Record Albums, worry over buyer fallout will become a thing of the past! The home buyer owns the loan from the time they close - before construction begins. Once construction is complete, the loan will then roll into permanent financing. Simplified Draw Process Quick turnaround on draws means a faster, smoother process, and happy builders.
Buyer Benefits Low Down Payment Requirements - Typically, the buyer can get a loan with as little as 3.5% down payment. In some cases, if the buyer already owns the land, they get a loan with no money out-of-pocket by using the land as equity. Reduces Costs and Frustrations - Saves on closing costs and hassles by combining the lot loan, interim construction financing, and permanent mortgage loan into one convenient, cost saving package. Deferred Payment - Unlike a two-time close, no payments will be made during the construction process. Payment begins after completion when the buyer is already enjoying their new home. Rate Protection - With one-close, the rate is locked at the time of closing. Borrowers are protected from any uncertainty of a rate hike while the home is in construction.
Realtor Benefits Move land listings with financing designed with buyers and land listings in mind. Commission paid at closing, no waiting for the house to be completed Assures Realtors have a qualified buyer 96.5% financing expands the potential pool of buyers
Originator Benefits Originator Benefits Grow and strengthen your builder and realtor partnerships Qualify more borrowers for new construction, build on your lot, financing Help your realtor partners move those land listings Give peace of mind to your builders by offering a No Buyer Fallout During Construction Guarantee Stand out from the crowd by offering a specialty product that s sure to get you noticed