Two closings: (i) at the time of the Interim
Construction Financing, to execute the Mortgage loan instruments, and (ii) at the time of Permanent Financing, to execute the Construction Conversion Modification Agreement and if necessary, a new Note
The Seller may use the applicable Freddie Mac Construction Conversion Modification Agreement(s) described in the chart above or develop their own modification agreement using Freddie Mac's examples. However, the Seller's modification agreement must not incorporate the terms of the Note for the Permanent Financing in those situations where Freddie Mac requires that a new Uniform Note be used.
If the Seller uses a different Construction Conversion Modification Agreement than those described above to evidence the terms of the Permanent Mortgage, Seller represents and warrants that the instrument, when completed:
This is defined in the Single-Family Seller/Servicer Guide Glossary: The date of the closing on the Permanent Financing and the date the term of the Permanent Financing begins; or, for Construction Conversion Mortgages and Renovation Mortgages, the date when the Interim Construction Financing is deemed to be paid off or converted or modified to and replaced by the Permanent Financing. The Effective Date of Permanent Financing is as follows:
| Construction Conversion Mortgages and Renovation Mortgages | |
|---|---|
| Integrated Construction Conversion Documentation | Due Date of the first monthly payment of principal and interest on the Permanent Financing |
| Separate Construction Conversion Documentation | Note Date of the Note and Security Instrument for the Permanent Financing |
| Modification Construction Conversion Documentation | Date on which the Construction Conversion Modification Agreement is effective or the date of the new Note for the Permanent Financing if a new Note is required |
A Construction Conversion or Renovation Mortgage that is a “no cash-out" refinance transaction may pay off junior liens provided the lien(s) were used in their entirety for the construction and/or renovation of the subject property. However, using mortgage proceeds to pay off construction costs paid by the borrower outside of the secured Interim Construction Financing is considered cash out to the borrower, if above $2,000 or 1% of the loan amount, whichever is greater. A mechanic’s lien would normally not be eligible because it is a construction cost paid by the borrower outside of the secured Interim Construction Financing.
The proceeds of the Permanent Financing may be used to pay off a junior lien(s) secured by the Mortgaged Premises provided the lien(s) were used in their entirety for the construction and/or renovation of the subject property, as applicable, as documented in the Mortgage file. 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 $2,000 or 1% of the loan amount, whichever is greater.
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 $2,000 or 1% of the loan amount, whichever is greater.
Question: When a borrower completes interim construction financing and permanent financing with different lenders, is the permanent financing considered a Construction Conversion Mortgage or is it a standard refinance transaction of a newly constructed property regardless of the land being owned at the time of interim financing? (Guide Section 4602.1) Answer: A transaction where the loan proceeds are used to replace Interim Construction Financing is - considered a Construction Conversion Mortgage, provided the Mortgage meets the requirements of Guide Chapter 4602.
The builder/developer must not be obligated to repay the Interim Construction Financing or any Mortgage on the land or the improvements except when the builder/developer is the Borrower on the Permanent Financing and will occupy the Mortgaged Premises as their Primary Residence.
This may be related to an interested party contribution and meet the requirements of Section 5501.5.Typically, the borrower on the Permanent Financing must be the borrower on, and obligated to repay, the Interim Construction Financing, and any other outstanding prior financing, including installation financing or outstanding prior mortgages. However, a borrower may be omitted in the event of a divorce.
Value used to determine the loan-to-value (LTV), total LTV (TLTV) and Home Equity Line of Credit (HELOC) TLTV (HTLTV) ratios must be established as follows:
*If the borrower acquired the land as a gift or by inheritance, the value of the land as reported on the appraisal may be used in lieu of the purchase price of the land.
Any item that is included in the calculation of cost to construct or renovate 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.
| "No Cash-out" Refinance Transactions | ||
|---|---|---|
| Property Type | Value | |
| Construction Conversion Mortgages | Renovation Mortgages | |
| 1- to 4-unit site-built home | Appraised value of the Mortgaged Premises, as completed | |
| "No Cash-out" Refinance Transactions | ||
|---|---|---|
| Property Type | Value | |
| Construction Conversion Mortgages | Renovation Mortgages | |
| 1-unit Manufactured Home | Appraised value of the Mortgaged Premises, as completed | Not eligible |
| Cash-out Refinance Transactions | ||
|---|---|---|
| Construction Conversion and Renovation Mortgages | ||
| Property Type | Value | |
| 1- to 4-unit site-built home | Appraised value of the Mortgaged Premises, as completed | |
| 1-unit Manufactured Home | Not eligible | |
Yes, a Construction Conversion Mortgage may be secured by a newly purchased Manufactured Home that has never been attached to a foundation. 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.
All improvements must be fully completed before the sale of the mortgage to Freddie Mac except for mortgages secured by site-built homes meeting the requirements in Section 5601.3 and for which completion escrows are established in accordance with the requirements of Section 5601.3.
No, the Seller must obtain an appraisal with a full interior and exterior inspection that meets Freddie Mac requirements for the applicable property type.
If the borrower acquired the land as a gift or by inheritance, the value of the land as reported on the appraisal may be used in lieu of the purchase price of the land when calculating value in accordance with Section 4602.10.