Selling Guide

Published December 16, 2020

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Are modifications allowed on a single-closing construction-to-permanent loan?

Modifications of Single-Closing Construction-to-Permanent Mortgages

If the terms of the permanent financing change after the original closing date of the construction loan, the loan may be modified to reflect the new terms if it meets all of the following criteria: 

  • The modification must take place prior to or at the time of conversion. 
  • Only the following loan terms may be modified in a single-closing transaction: 
    • interest rate,
    • loan amount,
    • loan term, and
    • amortization type.

The only amortization change permitted is from an adjustable-rate amortization to a fixed-rate amortization. Changes made to any other loan terms will require a two-closing construction-to-permanent transaction.

  • The loan must be underwritten based on the terms of the loan as modified and delivered to Fannie Mae. If the final (modified) terms of the loan do not match the last submission to DU, the loan must be re-submitted to DU (subject to the re-submission tolerances). 
  • Increases to the loan amount are permitted only as necessary to cover documented increased costs of construction of the property. 
  • If the modification results in an increase in the original loan amount, the lender remains responsible for all standard title insurance requirements. In addition, the lender must obtain an endorsement to the title insurance policy that 
    • extends the effective date of the coverage to the date of the recording of the modification agreement; 
    • increases the amount of the policy to the original loan amount, as increased; and 
    • confirms that the lien of the mortgage, as modified, continues to be a first lien. 

Note: Both the original construction loan amount at closing and the final modified loan amount delivered to Fannie Mae must meet the loan limits currently in effect.

  • The original construction loan must be documented on Fannie Mae uniform instruments or substantially similar documents, subject to the non-standard document representations and warranties.
  • The modification must be documented on one of the following:
    • Loan Modification Agreement (Providing for Fixed Interest Rate) (Fannie Mae Form 3179); 
    • Loan Modification Agreement (Providing for Adjustable Interest Rate) (Fannie Mae Form 3161); or 
    • A substantially similar document, subject to the non-standard document representations and warranties. 

For additional information See B5-3.1-02, Conversion of Construction-to-Permanent Financing: Single-Closing Transactions.

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