Download Construction-To-Perm Lending Rules Comparing Fannie to Freddie

6/25/2013
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
6/25/2013
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
6/25/2013
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
6/25/2013
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
6/25/2013
Freddie Guidelines
• 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
Freddie Guidelines
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
Freddie Guidelines
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
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
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
If the site-built home is on a
leasehold estate, not the lessee of
the leasehold estate
The owner of record of the land, or
If the site-built home is on a
leasehold estate, the lessee of the
leasehold estate
5
6/25/2013
Freddie Guidelines
 Section 24.5 and 24.6 of the Freddie Selling
Guide.
 What constitutes a “no cash-out refinance”
and a “cash-out” refinance.
Freddie Guidelines
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
Freddie Guidelines
 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 23.4.
 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
6/25/2013
Freddie Guidelines

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 24.2.

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
Freddie Guidelines
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.
Freddie Guidelines
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 12month period, or
•Appraised value of the Manufactured Home and land.
7
6/25/2013
Freddie Guidelines
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
Borrower for 12 or more months at the time of
the closing date of the Interim Construction
Financing, the value is:
•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
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
•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:
•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 appraised
value of the land), or
•Appraised value of the Mortgaged Premises, as
completed (see note below).
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).
1-unit Manufactured Home
Freddie Guidelines
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:
•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
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
 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)
Freddie
 Use FHLMC if looking to
help someone purchase a
vacant lot and affix a
manufactured home onto the
lot
8
6/25/2013
To Sum It All Up
 Information is current as of June 2013 (Subject
To Change)
 Fannie/Freddie Guidelines
 Check Lender Overlays
Want More Information?
Email to Set up Conference Call
[email protected]
Subject Line: Conf. Call
Construction/Perm Niche
9