2 AgendaOverviewConstruction-Perm (4155 Guidelines)EligibilityRequirementsDocumentation Requirements (Closing and Endorsement)ProcessBuilder ApprovalStructuring the DealDraw ProcessValue Proposition for All Parties
3 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, andThe traditional long-term permanent mortgageInvolves only one closingIs considered a purchase transaction, for mortgage insurance and LTV purposes, andIs made directly to the borrowerNew Construction, Build on Your Lot Financing for Today’s MarketStandard FHA guidelines apply3.5% down payment or Land in Lieu of down payment6% seller concessionsNo interest payments due during construction by either the builder or the buyerWorks for lot purchase or existing landNo additional appraisal after closingNo additional credit pull/qualifying after closingBorrowers can build anywhere
4 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 builder’s price to build.
5 FHA Construction-Perm Mortgage Program Land Equity: Equity in the land may be used for the borrower’s 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 borrower’s 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 may 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.
6 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 tothe lesser of the appraised value or the acquisition cost. The acquisition cost includesbuilder’s price to buildborrower-paid extras over and above the contract specification and/or out-of-pocket expenses over and above the interim loancost of the land, andclosing costsConstruction Period Fees: The following costs are paid by the builder during construction:construction loan interestcommitment feesinspection feestitle update chargesreal estate taxeshazard insuranceother financing charges incurred during the construction periodNote: 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.
7 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 ofConstruction Rider or Allonge to the Note, andConstruction Loan AgreementLenders 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 obtainA 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 mortgageVerification that the construction loan has been fully drawn downAll property related requirements for new construction.
8 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 companyCopy of State Builder License or Registration (if applicable);Copy of Occupational or Business License;Copy of Declarations Page: Worker’s Compensation Insurance & General Liability Insurance;Documentation on any ‘affiliated” business arrangements/ownership/affiliations;Copy of Principal(s) Resume;Copy of Articles of Incorporation; andCopy 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
9 BUILDERApplicationCompletion and acceptance of the Builder Approval PackageMust have an acceptable track record with trade references listedPage 5 signed and notarizedSigned General Authorization Letter (credit is pulled on all builders)Copy of builder’s 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.
10 P&L and Balance SheetYear-to-Date P&L and Balance Sheet
11 BUILDER APPROVAL PROCESS Builder Completed Approval PackageBuilder Submits Approval Package to Correspondent LenderCorrespondent Submits Completed Package to WMCWMC Reviews Builder Packet including reference checks, insurance verification, etc.WMC Notifies Correspondent of Builder Approval/Denial
12 LOAN FLOW Loan Modification Retainage Release *31 Days Originator to Complete Loan Calculator WorksheetBorrower ApprovalUnderwritingDoc Prep (completed by MRG)WMC Purchases LoanDisbursement: Land Payoff at ClosingFundingClosingDraw 1: 10% Soft cost immediately after closing, Borrower Signature RequiredDraw 2: Inspection Required, Buyer Sign RequiredDraw 3: Inspection Required, Buyer Sign RequiredDraw 4: Inspection Required, Buyer Sign RequiredDraw 5: Inspection Required, Buyer Sign RequiredLoan ModificationRetainage Release*31 Days*Number of days for retainage can vary by state
13 Draw Requests The following are required for the final draw: Signed by Inspector verifying completion of all work items from bidBuilder signatureBorrower Signature
16 Stage 1 *Weststar will disburse 10% of available construction funds immediately after closing Excavation/Plans/Permits/Site Prep/Other miscellaneous costsStage 4 *Weststar will disburse 48% of available construction funds at completion of the following:a) Insulationb) Sheetrock/Plasterc) Interior Trim and Doorsd) Interior Plumbinge) Cabinets/Tile/PaintStage 2 *Weststar will disburse 15% of available construction funds at completion of the following:a) Primary Plumbing Rough Inb) Footings, Foundation & SlabStage 5 *Weststar will disburse remainder of available construction funds at completion of the following:a) Furnace/AC or Evap. Coolerb) Stucco, Veneer, Sidingc) Exterior Paintingd) Exterior Concretee) Resilient Flooringf) Carpetingg) Plumbing Fixturesh) Final Electrical Fixturesi) Appliancesj) Finish Grade & Cleanupk) Certificate of OccupancyStage 3 *Weststar will disburse 33% of available construction funds at completion of the following:a) Framing & Sheathingb) Exterior Doorsc) Windows Setd) Wiring Rough Ine) Secondary Plumbing Rough Inf) Primary Heating Rough Ing) Secondary Heating Rough Inh) Fireplacesi) Roofingj) Approved Frame Inspection*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.
17 Draws & DisbursementsWeststar purchases the loan after closing and administers the drawsProgram 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.
18 Value Proposition Originators Buyer Grow and strengthen your builder and realtor partnershipsQualify more borrowers for new construction, build on your lot, financingHelp your realtor partners move those land listingsGive peace of mind to your builders by offering a ‘No Buyer Fallout During Construction” GuaranteeStand out from the crowd by offering a specialty product that’s sure to get you noticedBuyerLow 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.
19 Value Proposition Builder Realtor 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.RealtorMove 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.
20 Construction-to-Perm Financing for Today’s Market FHA One-Time CloseConstruction-to-Perm Financing for Today’s Market