Financing in Tampa>Question Details

JessicaTaylo…, Home Buyer in Atlanta, GA

When do you pay closing on a FHA Construction to Perm loan. After closing before building or after home is completed?

Asked by JessicaTaylor2425, Atlanta, GA Mon Aug 26, 2013

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I worked for builders for many years, sometimes doing construction to perm loans. The way it worked on a construction to perm loan was, you close upfront on the land, before the home is built and are responsible for interest only payments on the cost of the land at that time. Those payments are pretty small. Your builder carries the cost of insurance and taxes. Your builder will take 6 "draws" on your loan while the home is under construction. You will be responsible for interest only on the portion of the draws taken. So the first draw will be paid to the builder after the foundation is poured, usually 10% of the loan amount. Your bank will send someone to the construction site to make sure the foundation was completed, then release the 10% to the builder. Now you will start making the monthly interest only payments on that 10%. The next draw is after the frame is completed. The builder will draw probably 15% at that time. Now your monthly payments will adjust to the 25% of your loan. The draws will continue - 25% at the next one, then 25% for the next one, then 15%, and the last one at 10%. At that time, you'll go to the title company to sign the paperwork making your loan permanent. Then your monthly payments will begin with principal and interest payments for the life of the loan.
0 votes Thank Flag Link Sat Sep 28, 2013
JessicaTaylor2425, FHA is an end loan. There is an FHA 203K which is a re hab loan. the latter allows the buyer to purchase a home and calculate the cost of repairs (by a licensed contractor) and add these costs on top of the purchase price.

For example, the asking price is $100,000, estimated repairs $50,000. The lender verifies that the future value (with repairs) will carry $150,000. The loan is written at $150,000.

The buyer buys the property and closes. The $50,000 in repairs is held by the title company and released to the general contractor (draws) based upon completion and appraiser's inspection that work was satisfactory.

A construction to permanent loan is different. The home is to be built in the future it does not exist at closing. The FHA 203K loan the home exists and it will be re habbed.

Best regards,

Lynn Brock
Brock Realty Inc.

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0 votes Thank Flag Link Wed Sep 25, 2013
Using FHA Construction to Permanent loan. .. We own our lot..building a new construction home. Financing $250k. Loan went to underwriting on Friday 9/20 and hoping to hear something this week. We will close and pay closing after that and start our dream home!! Thank you!!! Do you know any ways UW can deny loan?> Scores are 798 and 677. They asked us to pay our car off $9100.00 so our DTI is extremely low. No BK or previous mortgages.. Just still anxious!
Flag Wed Sep 25, 2013
FHA Construction to Perm is one loan that closes at the beginning. The FHA component only kicks in at the time that you receive your Certificate of Occupancy. However, I have not heard of any local lenders that do this specialized FHA loan.
0 votes Thank Flag Link Mon Aug 26, 2013
Thank you Lisa! We looked forever and our builder recommended a lender who offers this program. There are not many at all. I thought it was beginning also. I appreciate it!
Flag Mon Aug 26, 2013
Jessica I assume you're buying from a builder? Not using FHA on a lot you already own to build on. You pay closing expenses at the closing date.

If my response was helpful, consider clicking BEST ANSWER!

Javier Meneses
Senior Loan Officer
NMLS #23130
310 Crossways Park Drive
Woodbury, NY 11797
(516) 606-9648 Cell
(516) 740-4478 Office
(516) 918-5383 Fax
0 votes Thank Flag Link Mon Aug 26, 2013
Hello! We own a lot (Bought July 2012) still owe around $24k on lot and rolling into the home loan... and are having a home custom built. Using FHA Construction to Permanent loan. Would closing date be first closing (before home starts) or second closing (completion)? Thank you Javier!
Flag Mon Aug 26, 2013
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