Fannie Mae Single Close
Construction Loans
Fannie Mae Single Close Construction Advantages
- Simplified Process - Combine Construction & home loan
- Convenience - Avoid the need to go through multiple closings
- Cost Savings - Borrower can potentially save on closing costs & other fees
- Rate Lock - Borrowers can lock rate before construction protecting themselves from potential rate increases
- Down payment options as low as 5% makes homeownership more accessible
- Permanent Mortgage Terms - Borrowers can secure terms upfront
- Increased Home Customization - Building from scratch allows for greater customization & personalization
Building your own home can seem like a fantastic idea granting you the freedom to design the exact house you’ve always envisioned in a location of your choosing. But there is much to know and understand going into it.
Opting for a new construction project entails significant deliberation and a substantial commitment. However, by utilizing a single close construction loan option, the entire procedure can be streamlined and made more straightforward in numerous instances.
Purchase land or build on property you already own with a single loan for both the construction and long-term mortgage of your new home.
What is a Fannie Mae Single Close Construction Loan?
A Fannie Mae Single Close Construction Loan refers to a financing option offered by Fannie Mae, a government-sponsored enterprise in the United States. This type of loan is designed to simplify the process of financing the construction of a new home.
Unlike traditional construction loans that require separate financing for the construction phase and a subsequent permanent mortgage, the Fannie Mae Single Close Construction Loan combines both into a single loan. This means that borrowers only have to go through the application and approval process once, reducing paperwork and potentially saving time and money.
The Fannie Mae Single Close Construction Loan provides funds to cover the construction costs, including land acquisition, construction expenses, and contingency reserves. After the construction is completed, the loan automatically converts into a permanent mortgage, eliminating the need for a separate closing.
This type of loan offers several advantages, including streamlined underwriting, a single set of closing costs, and the ability to lock in the interest rate upfront. It provides borrowers with greater convenience and financial flexibility when building their own homes. However, eligibility requirements and loan terms may vary, so it is advisable to consult with a lender or mortgage professional for specific details and options available.
How Do I Get a Fannie Mae Single Close Construction Loan?
If you’d like to see whether you qualify for a Fannie Mae single close construction loan, click the SEE LENDERS button to connect with one of our expert level single close construction partner.
To get you started, we’ve outlined some of the steps you may need to take and some of the qualification parameters you may need to meet to help you understand the process.
The Financing Process
A Fannie Mae Single Close Construction Loan refers to a financing option offered by Fannie Mae, a government-sponsored enterprise in the United States. This type of loan is designed to simplify the process of financing the construction of a new home.
Unlike traditional construction loans that require separate financing for the construction phase and a subsequent permanent mortgage, the Fannie Mae Single Close Construction Loan combines both into a single loan. This means that borrowers only have to go through the application and approval process once, reducing paperwork and potentially saving time and money.
The Fannie Mae Single Close Construction Loan provides funds to cover the construction costs, including land acquisition, construction expenses, and contingency reserves. After the construction is completed, the loan automatically converts into a permanent mortgage, eliminating the need for a separate closing.
This type of loan offers several advantages, including streamlined underwriting, a single set of closing costs, and the ability to lock in the interest rate upfront. It provides borrowers with greater convenience and financial flexibility when building their own homes. However, eligibility requirements and loan terms may vary, so it is advisable to consult with a lender or mortgage professional for specific details and options available.
Partnership Guidelines
Review our requirements and descriptions of the lending choices available to our partners.
Loan Requirements
To qualify for a Fannie Mae Single Close Construction loan, borrowers generally need to meet certain requirements. While specific criteria may vary depending on the lender and loan program, here are some common requirements:
1. Credit Score and History: Borrowers are typically required to have a good credit score, usually around 620 or higher. A clean credit history with no recent bankruptcies or foreclosures is generally preferred. However, some lenders may have different credit score requirements, so it’s important to check with your lender for their specific guidelines.
2. Income and Employment: Lenders will evaluate your income stability and ability to repay the loan. You will need to provide proof of income, such as tax returns, W-2 forms, or recent pay stubs. Self-employed individuals may need to submit additional documentation, such as profit and loss statements or business tax returns.
3. Down Payment: A down payment is typically required for a Fannie Mae Single Close Construction loan. The exact amount may vary depending on factors like creditworthiness, loan amount, and the lender’s policies. Generally, a down payment of at least 5% to 20% of the total project cost is expected.
4. Construction Plans and Budget: Detailed construction plans, including architectural drawings and cost estimates, are essential. Lenders will review these plans to assess the feasibility of the project and determine the loan amount needed.
5. Builder and Contractor Approval: The builder or contractor you choose for the construction project must be approved by the lender. Lenders often have a list of approved builders or contractors, or they may have specific criteria that must be met.
6. Appraisal: An appraisal will be conducted to determine the value of the property based on its completed state. The appraised value helps determine the loan amount and loan-to-value ratio.
It’s important to note that these requirements are general guidelines, and specific criteria may vary among lenders and loan programs. Additionally, Fannie Mae has its own guidelines and eligibility standards that lenders must follow. Consulting with a lender or mortgage professional who offers Fannie Mae Single Close Construction loans will provide you with detailed and up-to-date information on the specific requirements and qualifications for the loan.
Fannie Mae Single Close Construction Loans FAQs
Financing the build and long-term mortgage of your new home is an important step in beginning this process. It’s ok to have questions. We’ve compiled answers to the frequently asked ones, but don’t hesitate to ask more.
What is a Fannie Mae Single Close Construction loan?
A single close transaction, also known as a one-time close or a construction-to-permanent loan, is a financing arrangement that combines the construction loan and the permanent mortgage into a single loan. This type of transaction is commonly used when building a new home or undertaking a major renovation.
In a single close transaction, the borrower obtains financing for both the construction phase and the long-term mortgage at the same time, eliminating the need for separate loans and multiple closings. This streamlined approach simplifies the lending process for borrowers and provides several benefits.
Interest rates for all single close construction loans vary based on a variety of factors including your income and finances, credit score, the location where you want to build, and loan amount.
To know what interest rate your situation would qualify for, get in touch with one of our loan advisors for more specific information.
How does a Fannie Mae Single Close Construction loan work?
A Fannie Mae Single Close Construction loan is a type of mortgage that combines the financing for both the construction phase and the permanent mortgage into a single loan. It simplifies the process for borrowers who are building a new home or undergoing a major renovation. Here’s how it generally works:
Loan Application: The borrower applies for a Fannie Mae Single Close Construction loan with an approved lender. The lender assesses the borrower’s creditworthiness, financial situation, and the proposed project.
Project Approval: The lender evaluates the construction plans, cost estimates, and other project details to ensure they meet Fannie Mae’s guidelines and requirements for a single close loan.
Loan Approval: Once the borrower and the project are approved, the lender provides a loan commitment, which outlines the terms, conditions, and funding for the loan.
Construction Phase: The borrower works with the chosen builder or contractor to commence the construction or renovation. During this phase, the borrower receives funds from the lender in installments (draws) to cover the construction costs. The lender typically conducts inspections to ensure the work is progressing according to the plan.
Interest-Only Payments: During the construction phase, the borrower usually makes interest-only payments on the amount of funds drawn. This helps manage the initial cash flow burden while the property is being built or renovated.
Conversion to Permanent Mortgage: Once the construction is complete, the loan automatically converts to a permanent mortgage without the need for additional applications or closings. The borrower begins making principal and interest payments based on the terms of the permanent mortgage.
It’s important to note that the specific terms and requirements of a Fannie Mae Single Close Construction loan can vary depending on the lender, the borrower’s qualifications, and the project details. Borrowers should consult with lenders or mortgage professionals to understand the specific process and requirements for their individual circumstances.
Additionally, it’s recommended to work with experienced lenders who are knowledgeable about construction loans and have expertise in Fannie Mae Single Close Construction loans to ensure a smooth and successful loan process.
With a single close loan, you only pay closing costs once and your closing package includes a single promissory note and one deed.
This is a unique benefit that many other financing options for home building don’t offer. With other loan types, borrowers often need two or more loans to finance the actual build and their long-term mortgage, meaning they pay closing costs for each of those loans.
What are the benefits of a Fannie Mae Single Close Construction loan?
ButtonA Fannie Mae Single Close Construction loan offers several benefits for borrowers undertaking a construction project. Here are some key advantages:
Simplified Process: With a single loan that combines both the construction phase and the permanent mortgage, borrowers avoid the need for separate applications, approvals, and closings. This streamlined process saves time, effort, and potentially reduces closing costs.
Cost Savings: By eliminating the need for two separate loans, borrowers can potentially save on closing costs and associated fees. This can lead to overall cost savings compared to traditional construction loans.
Interest Rate Lock: Fannie Mae Single Close Construction loans allow borrowers to lock in their interest rate upfront before the construction begins. This protects them from potential interest rate increases during the construction period, providing stability and potentially saving money over the long term.
Flexible Down Payment: These loans offer flexible down payment options, including as low as 5% down for certain borrowers. This can make homeownership more accessible, particularly for first-time homebuyers.
Preservation of Cash: Instead of paying for the construction costs upfront, borrowers can finance the construction within the loan. This allows them to preserve their cash for other purposes or unexpected expenses during the construction process.
Construction Expertise: Lenders offering Fannie Mae Single Close Construction loans often have experience and expertise in construction lending. They can provide guidance and support throughout the construction process, ensuring a smooth and successful project.
Permanent Mortgage Terms: Borrowers can secure their permanent mortgage terms upfront, avoiding the uncertainty of requalification or potentially higher rates after the construction phase. This provides peace of mind and stability for long-term homeownership.
Potential Tax Benefits: Like any mortgage, borrowers may be eligible for tax benefits associated with mortgage interest and property taxes. Consultation with a tax professional is recommended for specific guidance.
Increased Home Customization: Building a home from scratch allows for greater customization and personalization. With a Fannie Mae Single Close Construction loan, borrowers have the opportunity to design and build a home that meets their specific needs and preferences.
Long-Term Value: Constructing a new home or completing a major renovation can potentially increase the value of the property over time. This can provide a strong foundation for building equity and long-term wealth.
It’s important to note that the specific terms and benefits of a Fannie Mae Single Close Construction loan may vary depending on the lender, borrower’s qualifications, and other factors. Consulting with lenders or mortgage professionals is crucial to understand the exact benefits and suitability of these loans for individual circumstances.
These loans are well suited for newly constructed single-family homes. Whether you’re tearing down an old house, building new on a vacant lot, or buying a manufactured home, Fannie Mae loans can help.
If you’re purchasing a one-unit primary residence, you may also be eligible to use gifts, donated grant funds, or funds received from an employer to pay for some or all of the borrower minimum contribution that is required to secure a Fannie Mae single close construction loan.
What are the eligibility requirements for a Fannie Mae Single Close Construction loan?
The eligibility requirements for a Fannie Mae Single Close Construction loan can vary depending on the lender and the specific loan program. However, here are some common eligibility criteria to consider:
Credit Score: Typically, borrowers are required to have a minimum credit score of 620 or higher. However, some lenders may have different credit score requirements.
Debt-to-Income Ratio: Lenders generally look for a reasonable debt-to-income ratio, which is the percentage of a borrower’s monthly gross income that goes toward debt payments. The maximum allowable debt-to-income ratio may vary but is commonly around 45% to 50%.
Income and Employment: Borrowers must have a stable and verifiable source of income. Lenders usually require documented income, such as pay stubs, W-2 forms, or tax returns, to evaluate a borrower’s ability to repay the loan.
Down Payment: Fannie Mae Single Close Construction loans offer flexible down payment options, including as low as 5% down for certain borrowers. However, the exact down payment requirement can vary based on factors such as creditworthiness and the loan program.
Builder and Project Approval: The builder and the construction project must meet specific requirements and be approved by the lender. The builder should be licensed, experienced, and capable of completing the project successfully. The project plans and specifications must comply with local building codes and Fannie Mae’s guidelines.
Property Appraisal: An appraisal is conducted to determine the value of the property both before and after the construction or renovation. The appraiser assesses the feasibility, quality, and marketability of the project.
Reserves: Lenders may require borrowers to have reserves or cash reserves available. This ensures that borrowers have additional funds to cover unexpected expenses during the construction phase.
It’s important to note that these are general eligibility requirements, and lenders may have additional criteria or variations based on their specific loan programs. It’s recommended to consult with lenders or mortgage professionals directly to understand the exact eligibility requirements for a Fannie Mae Single Close Construction loan based on individual circumstances.
What are the down payment requirements for a Fannie Mae Single Close Construction loan?
The down payment requirements for a Fannie Mae Single Close Construction loan can vary based on several factors, including the borrower’s creditworthiness, loan program, and other eligibility criteria. Here are some general guidelines regarding down payments for these loans:
Minimum Down Payment: Fannie Mae allows for a minimum down payment of 5% for certain borrowers. This means that borrowers may be able to finance up to 95% of the total project costs, including land acquisition, construction expenses, and closing costs.
Mortgage Insurance: If the down payment is less than 20% of the appraised value or the total project costs, private mortgage insurance (PMI) or mortgage insurance premiums (MIP) may be required. This insurance protects the lender in case of default and adds an additional cost to the loan.
Additional Requirements: Some lenders may have specific requirements regarding down payments based on their loan programs or borrower qualifications. These requirements may result in a higher minimum down payment or additional reserves.
It’s important to note that down payment requirements can vary, and it’s recommended to consult with lenders or mortgage professionals directly to understand the specific down payment requirements for a Fannie Mae Single Close Construction loan based on your individual circumstances.
Additionally, it’s worth considering that a larger down payment can potentially offer benefits such as lower monthly mortgage payments, reduced interest costs, and increased equity in the property. Borrowers should carefully evaluate their financial situation and choose a down payment amount that aligns with their needs and goals.
Can I use a Fannie Mae Single Close Construction loan for a renovation project?
Yes, you can use a Fannie Mae Single Close Construction loan for a renovation project in addition to building a new home. These loans are designed to finance both the construction of a new home and major renovations, providing borrowers with flexibility in their home improvement projects.
When using a Fannie Mae Single Close Construction loan for a renovation project, the process typically involves the following steps:
Loan Application: You apply for a Fannie Mae Single Close Construction loan with an approved lender, specifying that it will be used for a renovation project. The lender evaluates your qualifications and assesses the feasibility of the renovation plans.
Project Approval: The lender reviews the renovation plans, cost estimates, and other project details to ensure they meet Fannie Mae’s guidelines for a single close loan. They assess the proposed improvements and their impact on the property’s value.
Loan Approval: Once the renovation project is approved, the lender provides a loan commitment outlining the terms, conditions, and funding for the loan. The loan amount will cover both the construction costs and the permanent mortgage.
Construction and Renovation: With the loan approved, you work with the contractor to complete the renovation project. The funds are typically disbursed in installments (draws) throughout the construction process, based on the lender’s inspections and verification of completed work.
Conversion to Permanent Mortgage: Once the renovation is complete, the loan automatically converts to a permanent mortgage. You transition from making interest-only payments during the construction phase to making principal and interest payments based on the terms of the permanent mortgage.
Using a Fannie Mae Single Close Construction loan for a renovation project allows you to finance the costs of the renovation within the same loan, simplifying the financing process and potentially reducing closing costs. It provides a convenient option for homeowners looking to improve their existing property while obtaining long-term financing in a single loan package.
Are there any specific property requirements for a Fannie Mae Single Close Construction loan?
Yes, there are specific property requirements for a Fannie Mae Single Close Construction loan. These requirements are put in place to ensure the property meets certain standards and that the loan funds are used for eligible construction or renovation projects. Here are some key property requirements to consider:
Single-Unit Property: Fannie Mae Single Close Construction loans are generally available for single-unit, primary residences. They may not be suitable for multi-unit properties or investment properties.
Property Type: The property can be an existing home that requires renovation or a new construction project. It should be designed for residential use and meet local building codes and zoning requirements.
Construction Standards: The construction or renovation plans must meet Fannie Mae’s guidelines and local building codes. The property should be structurally sound and habitable, with no health or safety hazards.
Appraisal: An appraisal is conducted to determine the value of the property both before and after the construction or renovation. The appraiser assesses the property’s condition, the feasibility of the project, and the expected value after completion.
Builder Approval: The builder or contractor involved in the construction or renovation project must be approved by the lender. The lender will review the builder’s qualifications, track record, and financial stability to ensure they are capable of completing the project successfully.
Construction Contracts: In some cases, lenders may require a signed contract or agreement between the borrower and the builder detailing the scope of work, cost estimates, and other project specifications.
It’s important to note that these are general property requirements, and specific guidelines may vary depending on the lender, loan program, and individual circumstances. It’s recommended to consult with lenders or mortgage professionals who offer Fannie Mae Single Close Construction loans. They can provide specific guidance and ensure that your property meets the necessary requirements for the loan.
