Manual 3c

American Southwest Mortgage - Correspondent Lending Manual

Processing and Underwriting Rules - Continued

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CONSTRUCTION TO PERM
PURCHASE OR REFINANCE DIAGNOSIS

THE LOAN IS A REFINANCE (ACQUISITION COSTS DO NOT NEED TO BE DOCUMENTED) IF THE FOLLOWING CRITERIA CAN BE MET:

THE LOAN MUST BE CONSIDERED A PURCHASE, WITH DOCUMENTED ACQUISITION COSTS IF ANY THE FOLLOWING APPLY:

Value is determined by current appraised value

Value is determined by lesser of current appraised value or documented acquisition costs

Lot is already in the borrower's name

Lot is in the name of the builder only; or the builder and borrower together

Construction loan is in the borrower's name

Construction loan is in the name of the builder only; or the builder and borrower together

Loan to value is 90% or less

There is a construction contract with the builder with a one time payment to the builder and payoff of the construction loan.

The payment for construction is not a one time payment to a builder at the time of closing, but has been paid with construction draws as needed throughout the construction period.

Title will not be conveyed to the borrower until closing
(it is common in these transactions for the borrower to have deeded previously acquired land, to the builder during construction; the value of the land can be credited as earnest money)

IT IS ESSENTIAL THAT A CONSTRUCTION TO PERMANENT TRANSACTION BE CLOSED AS A PURCHASE IF THE LTV EXCEEDS 90%. ONE OF THE CONDITIONS, SET OUT IN SECTION B ABOVE, MUST BE MET TO BE ELIGIBLE TO CLOSE A 95% CONSTRUCTION PERMANENT LOAN. THE BUILDER MUST BE ABLE TO LEGITIMATELY BE REPRESENTED AS THE SELLER AT CLOSING, INCLUDING SIGNING THE HUD-1

Cash Back on New Construction Transactions

When a construction to permanent loan results in the borrower receiving cash back at closing, the loan must be treated as a cash-out refinance and limited to a 75% LTV (in some instances the LTV may be increased to 80%). In these transactions the loan is considered a refinance transaction and rescission rights must be given.

Acquisition Cost Documentation (When required for purchase transactions)

Copy of deed and HUD-1 on purchase of land

Construction contract with the builder; or cost breakdown if borrower is the builder

Determining Borrower's Equity (For purchase transactions only)

Borrower can be given credit for equity in the property in an amount equal to the lesser of the cost of the land or the current value, if owned less than a year; or the current value as reflected on the appraisal, if owned more than a year.

If the Hud-1 on the purchase of the land reflects any outstanding liens, this amount must be deducted from any equity credited to the borrower.

ADDITIONAL INFORMATION THAT WILL HELP THE UNDERWRITER

If acquisition costs are being documented, how was lot acquired? Accumulated savings, gift etc. If the land was recently purchased the source of funds, and/or evidence that the borrower had the funds would be required. Equity credits must be documented in the same way as any earnest money deposit, if the land was recently (less than one year) obtained.

Properly completed top section of page one of the URLA

Accurate completion of the details of purchase. Details of purchase should be consistent with the way the loan is being submitted. If being submitted as a purchase, a sales price should be reflected. If being submitted as a refinance, then only the payoff of the construction loan should be reflected in the appropriate space.

If a house number has not been assigned at the time of underwriting, the appraiser should provide the correct number as part of the final inspection.

Front elevation from plans and specifications submitted as part of the appraisal on proposed cases.

ON ALL CONSTRUCTION TO PERMANENT TRANSACTIONS, THE CONSTRUCTION LOAN MUST BE FULLY DISBURSED AND PAID OFF AT CLOSING SUBJECT TO NO ADDITIONAL DISBURSEMENTS.

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