Selling Guide

Published December 16, 2020

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What are the eligible loan purposes for a single-closing construction-to-permanent loan?

Eligible Loan Purposes for Single-Closing Construction-to-Permanent Mortgages

A single-closing construction-to-permanent mortgage loan may be closed as:

  • a purchase transaction, or
  • a limited cash-out refinance transaction.

When a purchase transaction is used, the borrower is not the owner of the lot at the time of the first advance of interim construction financing, and the borrower is using the proceeds from the interim construction financing to purchase the lot and finance the construction of the property.

When a limited cash-out refinance transaction is used, the borrower must have held legal title to the lot before he or she receives the first advance of interim construction financing. The borrower is using the proceeds from the construction financing to pay off any existing liens on the lot and finance the construction of the property. This type of transaction is not a “true” limited cash-out refinance whereby the borrower refinances a loan(s) that was used to purchase a completed property; however, all other requirements for limited cash-out refinances apply. See B2-1.3-02, Limited Cash-Out Refinance Transactions and the limited cash-out refinance requirements in B5-2-03, Manufactured Housing Underwriting Requirements.

Note: Cash-out refinance transactions are not eligible for single-closing construction-to-permanent mortgages.

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

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