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FHLMC One-Time Close Construction

What is the Freddie Mac One-Time Close Construction Loan?

This FHLMC One-Time Close (OTC) Construction loan is a product that allows borrowers to combine financing for a lot purchase, construction and permanent mortgage into one first mortgage loan. Ideally suited for borrowers who are purchasing new construction.

Updated FHLMC OTC Program overlays and eligibility include:

  • Newly Constructed Modular and Manufactured homes:
    • Maximum of $250,000 disbursement at closing for land acquisition or payoff.
  • Permit Requirements Prior to Closing (AFR will require ONE of the following before closing):
    • Approved Building Permit: Issued by the local building authority for the proposed plan on file.
    • Perc Test and Timeline Confirmation: A perc test supporting the appropriate bedroom count for the project, along with a letter from the local building department confirming that the permit will be issued within 90 days. (Note: The total construction timeline must account for the estimated permit wait time plus the build time, with the entire project not exceeding 10 months for FNMA or FHLMC.)
    • Special Provision for projects pending permit issuance post initial loan closing:
      • If permits are approved but require payment prior to being issued, an initial disbursement can be arranged at closing to cover the permit fees and any associated costs. This includes, but is not limited to:
          • Impact fees
          • State or local tax stamps
          • Other fees required by the local authority to be paid prior to issuance of permit.
        • NO additional funds or subsequent draws will be dispersed to the builder contractor or any other party until the building permits are issued for the project
      • If permits are not obtained prior to closing the initial disbursement for land is capped at a maximum of $75,000.

      FHLMC One-Time Close Construction Loan – The Basics

      • Designed to simplify the financing process for new home buyers, eliminating the need to obtain both a construction loan and permanent mortgage
      • Single closing, where the borrower pays interim construction financing on an interest only basis during the construction phase
      • For Construction-to-Permanent, closing occurs before construction begins
      • Max LTV 95% for Modular and Manufactured Homes; Max LTV 95% for CHOICEHome; Max LTV 97% if CHOICEHome is combined with Home Possible or HomeOne
      • Closing costs may be financed
      • 15-, 20-, 30-year fixed rate available
      • No re-qualification once construction is complete (reverification of employment is required prior to converting to permanent financing)
      • A single closing reduces closing costs, saving your borrowers money

      What are the benefits?

      Single Closing Saves Time and Money

      With this FHLMC OTC loan, borrowers can secure financing for the purchase of the land, the construction and the home’s permanent mortgage in a single closing. Only one closing means only one set of closing costs, helping save money. It also allows the process to move forward without interruption from potential snags in financing other aspects later on.

      No Re-Qualifying

      • Once the construction phase is complete, the borrowers do not have to re-qualify for a permanent mortgage since the permanent loan is closed before construction begins (however, reverification of employment is required prior to converting to permanent financing)
      Fixed Rates

      • Since the permanent mortgage is closed before construction begins, the fixed rates on Conventional OTC loans will not be subject to change during the construction phase or at any point

      Who is eligible for a FHLMC One-Time Close Construction Loan?

      This Conventional OTC loan product is available to any borrower who meets the minimum qualifying criteria. This includes first time and repeat buyers. Here are the basic requirements for approval:

      • Borrower must have contracted with a builder (must be licensed general contractor)
      • Borrower must be purchasing the land at closing, or currently own their property
      • At closing, after funds are disbursed to cover the purchase of the land, the balance of the mortgage proceeds must be placed in an escrow account to be disbursed as construction progresses
      • Amortization of the permanent mortgage must begin no later than the first of the month following 60 days from the date of the final inspection or issuance of the Certificate of Occupancy
      • Maximum loan amounts will vary by location
      • Minimum FICO of 700

      Other Programs to Explore

      If the FHLMC One-Time Close Construction Loan does not work for a scenario, perhaps one of these programs will better suit your borrowers’ needs:

      • FHA One-Time Close Construction, offers the benefits of low money down financing, competitive interest rates and one closing for all financing
      • VA One-Time Close Construction, for eligible veterans and active duty military who are interested in building a new home
      • Fannie Mae HomeReady, designed to help low- to moderate-income borrowers achieve homeownership for as little as 3% down
      • To purchase a home or take cash out through a refinance: FHA 203(b) Standard
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