Presentation on theme: "FHA One-Time Close Construction-to-Perm Financing for Todays Market."— Presentation transcript:
FHA One-Time Close Construction-to-Perm Financing for Todays Market
Agenda Overview Construction-Perm (4155 Guidelines) Eligibility Requirements Documentation Requirements (Closing and Endorsement) Process Builder Approval Structuring the Deal Draw Process Value Proposition for All Parties
Overview: Features of the FHA One-Time Close Combines the Following Features: A construction loan, which is a short-term interim loan for financing the cost of construction, and The traditional long-term permanent mortgage Involves only one closing Is considered a purchase transaction, for mortgage insurance and LTV purposes, and Is made directly to the borrower Standard FHA guidelines apply 3.5% down payment or Land in Lieu of down payment 6% seller concessions No interest payments due during construction by either the builder or the buyer Works for lot purchase or existing land No additional appraisal after closing No additional credit pull/qualifying after closing Borrowers can build anywhere New Construction, Build on Your Lot Financing for Todays Market
FHA Construction-Perm Mortgage Program Contract with the Builder: The borrower has contracted with a builder to construct the improvements. Note: Borrowers are not allowed to act as his/her own general contractor. Lot Ownership: The borrower must own or be purchasing the lot at the closing of the CP loan. Note: If the builder / builder owns the lot, the lot must be included in the total contract price. Lot Acquisition: If the borrower purchased the lot within the past six months, he/she must provide a copy of the HUD-1 Settlement statement, or other settlement statement showing the acquisition cost. If the borrower owns the lot free-and-clear, the lender must document the date of ownership and omission or any liens from title work and settlement statements. Verification of Loan Balance/Escrow Account :The balance on the CP loan, when it is fully drawn, must be verified. The construction escrow account, if established, must be fully extinguished. Sales Agreement : The borrower must provide a copy of the fully executed contract agreement, which includes the builders price to build.
FHA Construction-Perm Mortgage Program Land Equity: Equity in the land may be used for the borrowers down payment. Land-in-Lieu. Note: If the value of the land is lower than the acquisition cost, the value must be used in calculating the maximum mortgage amount. If the builder is also the seller of the land, the total acquisition cost for the maximum mortgage purposes is the borrowers purchase price. Note: If the land has been owned more than six months, or was received as an acceptable gift, the value of the land ma y be used instead of its cost. Permanent Loan Interest Rate: The permanent mortgage loan interest rate is locked at the time of closing. Amortization: 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. Eligibility for Insurance : The lender must provide a disclosure to the borrower 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.
FHA Construction-Perm Mortgage Program Cash Back to Borrower: Borrowers are not permitted to receive cash back. Maximum Mortgage Amount: The maximum mortgage amount is determined by applying the LTV limits to the lesser of the appraised value or the acquisition cost. The acquisition cost includes builders price to build borrower-paid extras over and above the contract specification and/or out-of-pocket expenses over and above the interim loan cost of the land, and closing costs Note: Interim construction fees are not due during the construction period. If the interest reserve is not sufficient to cover the actual costs, the additional costs will be deducted from the builders final draw. Construction Period Fees: The following costs are paid by the builder during construction: construction loan interest commitment fees inspection fees title update charges real estate taxes hazard insurance other financing charges incurred during the construction period
FHA Construction-Perm Mortgage Program Disbursing Funds: Written approval from the borrower must be obtained before each draw payment is provided to the builder. Closing Documents: Standard FHA documents are used when closing a construction-permanent mortgage loan, with the addition of Construction Rider or Allonge to the Note, and Construction Loan Agreement Lenders must also provide an executed Loan Modification Agreement to confirm 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. Documentation Required for Endorsement: Prior to endorsement the lender must obtain 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.
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 (if applicable); Copy of Occupational or Business License; Copy of Declarations Page: Workers Compensation Insurance & General Liability Insurance; Documentation on any affiliated business arrangements/ownership/affiliations; Copy of Principal(s) Resume; Copy of Articles of Incorporation; and Copy of 2009 business tax returns (for business) or personal tax return (for sole proprietor). Copy of 2010 business tax returns (for business) or personal tax return (for sole proprietor). If extension was filed, need 2010 financials. 2011 YTD Financials Builder Approval
BUILDER APPLICATION Completion and acceptance of the Builder Approval Package Must have an acceptable track record with trade references listed Page 5 signed and notarized Signed General Authorization Letter (credit is pulled on all builders) Copy of builders commercial insurance policy or policies indicating an acceptable level of general liability coverage. Copy of any/all licenses required by the state in which business is conducted.
P&L AND BALANCE SHEET Year-to-Date P&L and Balance Sheet
BUILDER APPROVAL PROCESS Builder Completed Approval Package Builder Submits Approval Package to Correspondent Lender Correspondent Submits Completed Package to WMC WMC Reviews Builder Packet including reference checks, insurance verification, etc. WMC Notifies Correspondent of Builder Approval/Denial
LOAN FLOW Retainage ReleaseLoan Modification *31 Days Originator to Complete Loan Calculator Worksheet Borrower Approval Underwriting Doc Prep (completed by MRG) ClosingFunding WMC Purchases Loan Disbursement: Land Payoff at Closing Draw 1: 10% Soft cost immediately after closing, Borrower Signature Required Draw 2: Inspection Required, Buyer Sign Required Draw 3: Inspection Required, Buyer Sign Required Draw 4: Inspection Required, Buyer Sign Required Draw 5: Inspection Required, Buyer Sign Required *Number of days for retainage can vary by state
Draw Requests The following are required for the final draw: Signed by Inspector verifying completion of all work items from bid Builder signature Borrower Signature
STRUCTUING THE LOAN USING THE CONSTRUCTION-TO-PERM LOAN CALCULATOR WORKSHEET
* An inspection must be completed by either a home inspector, original appraiser or an engineer. They will need to certify that each item has been satisfactorily completed according to 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. Stage 1 * Weststar will disburse 10% of available construction funds immediately after closing a)Excavation/Plans/Permits/Site Prep/Other miscellaneous costs Stage 2 *Weststar will disburse 15% of available construction funds at completion of the following: a) Primary Plumbing Rough In b) Footings, Foundation & Slab Stage 3 *Weststar will disburse 33% of available construction funds at completion of the following: a) Framing & Sheathing b) Exterior Doors c) Windows Set d) Wiring Rough In e) Secondary Plumbing Rough In f) Primary Heating Rough In g) Secondary Heating Rough In h) Fireplaces i) Roofing j) Approved Frame Inspection Stage 4 *Weststar will disburse 48% of available construction funds at completion of the following: a) Insulation b) Sheetrock/Plaster c) Interior Trim and Doors d) Interior Plumbing e) Cabinets/Tile/Paint Stage 5 *Weststar will disburse remainder of available construction funds at completion of the following: a) Furnace/AC or Evap. Cooler b) Stucco, Veneer, Siding c) Exterior Painting d) Exterior Concrete e) Resilient Flooring f) Carpeting g) Plumbing Fixtures h) Final Electrical Fixtures i) Appliances j) Finish Grade & Cleanup k) Certificate of Occupancy
Weststar purchases the loan after closing and administers the draws 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 (Weststar 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. Draws & Disbursements
Originators 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 thats sure to get you noticed Buyer 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 rate locked for 150 days. Value Proposition
Builder Expand their potential and free up credit lines for other projects - Loans are made directly to the homebuyer 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, homebuyers 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 homebuyer 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. Realtor Move land listings with financing designed with buyers and land listings in mind. Commission paid at closing. Assures Realtors have a qualified buyer. 96.5% financing expands the potential pool of buyers. Value Proposition
FHA One-Time Close Construction-to-Perm Financing for Todays Market