Desktop Underwriter Job Aids

 

  • Contents

My web page

Data Entry Instructions for Construction-to-Permanent Transactions

For ease of reference, we will generally use the term “DU” to refer to Desktop Originator® and Desktop Underwriter® (DO®/DU®).

Conversions of construction-to-permanent financing

Fannie Maes policies and guidelines stated in the Selling Guide, for conversions of construction-to-permanent financing are applicable to loan casefiles underwritten with DU. Loan casefiles for construction-to-permanent transactions should be submitted based on the following criteria:

  • If the transaction will be closed as a purchase transaction, it should be entered as Construction in Section II. DU will treat a construction transaction as a purchase money transaction (single-closing transaction).

  • If the transaction will be closed as a refinance transaction, it should be entered as Construction- Permanent in Section II. DU will treat a Construction-Permanent transaction as a refinance transaction (single-closing or two-closing transactions).

Construction

Construction: Data entry

The data entry requirements for construction transactions are described below.

Construction: Section II

Purpose of loan: Select Construction as the loan purpose in Section II. DU treats construction transactions as purchase money mortgages, and issues specific construction transaction messages.

Data entry tip: Enter construction transactions being closed as a purchase as Construction in Section II.

Construction: Section II

Loan terms: The loan casefile should be underwritten through DU based on the terms of the permanent loan at modification. Because the interest rate is unknown and is subject to change over the course of the construction period, you may want to submit the loan at a higher interest rate to help ensure that the borrower will still qualify if there is an increase in rates. If there are changes to the terms of the loan during the process, the loan casefile must be resubmitted if the change in data falls outside the tolerances permitted as detailed in the Selling Guide.

Construction: Section VII

Line a. Purchase price: Enter the cost of construction. If the borrower acquires the lot from the builder as part of the transaction, include the cost of the lot in Line a.

Data entry tip: Enter the cost of construction in Line a, Section VII, for Construction transactions. Loan casefiles submitted without a purchase price receive an error message.

Line b. Alterations, improvements, repairs: Not applicable to construction transactions.

Line c. Land: If the borrower acquires the lot separately, the sales price of the lot must be entered in Line c.

Line d. Refinance: Not applicable to construction transactions.

Construction: Appraised value

The appraiser must provide an as-completed” appraised value of the property. Enter the as-completed” value.

Construction: LTV calculations

The LTV is calculated based on the lesser of the total purchase price, or the appraised value. The total purchase price is based on the cost of construction plus the sales price of the lot entered in Section VII. DU calculates the LTV for Construction transactions as follows:

Loan amount / (Lesser of: total purchase price (Line a plus Line c) or appraised value)

Age of documents for construction transactions

All verification documents must comply with the Age of Credit and Appraisal Documents policy in the Selling Guide. Single-closing construction transactions with credit and appraisal documents dated more than four months but not exceeding 18 months old at the time of the conversion to permanent financing are eligible for delivery if all of the following conditions were met at the time of the original closing of the construction loan:

  • The documents were dated within 120 days of the original closing date of the construction loan.

  • The LTV, CLTV, and HCLTV ratios do not exceed 70%.

  • The borrower has a minimum representative credit score of 700.

  • The loan casefile was underwritten through DU and received an Approve/Eligible recommendation.

If any one of the above conditions was not met or an eligible loan term was modified subsequent to the last DU submission, the lender must:

  • obtain updated credit documents and an appraisal update completed on an Appraisal Update and/or Completion Report (Form 1004D), and

  • re-qualify the borrowers before the mortgage loan is delivered to Fannie Mae.

Construction-permanent

The maximum LTV/CLTV will be based on the occupancy of the property and the respective LTV/CLTV requirements for limited cash-out and cash-out refinances. DU will determine based on the data entered if the loan is eligible as a limited cash-out refinance or as a cash-out refinance. If the loan is not eligible as either type of refinance, DU will return an Ineligible recommendation.

Example: If the property will be the principal residence of the borrower, the LTV is greater than 80%, and the borrower is receiving more than 2% of the loan amount in cash back, then the loan will be ineligible.

Note: Cash-out refinance transactions are not permitted with single-closing construction-to-permanent mortgages.

Construction-permanent: Data entry

The data entry requirements for construction-permanent transactions are described below.

Construction-permanent: Section II

Loan purpose: Select Construction-Permanent as the loan purpose in Section II. DU treats construction-permanent transactions as refinance mortgages.

Data entry tip: Enter construction transactions being closed as a refinance as Construction-Permanent in Section II.

Construction-permanent: Section VI L

The interim construction loan should be entered as a mortgage and marked Paid By Close. If entering REO data in the Schedule of Real Estate Owned in the Full 1003, match the interim construction mortgage to the subject property. If using indicators and data fields in lieu of entering complete REO data, use the Subject Property indicator in Section VI L. The outstanding loan balance must reflect the total amount of the interim construction loan upon completion the fully drawn amount. Include any separate unpaid liens against the lot if applicable. The total unpaid balance should be entered in Section VII, Line d.

Construction-permanent: REO screen

If entering REO data in the Schedule of Real Estate Owned in the Full 1003, the subject property must be identified in the Property Indicator field. The property should be entered as Subject of the Loan, or as Refi of Current Residence if the borrowers are already residing in the property. If using indicators and data fields in lieu of entering complete REO, use the Subject Property indicator in Section VI L.

Construction-permanent: Section VII

Line d: Refinance: Enter the total amount of the interim construction loan upon completion the fully drawn amount. Include any separate unpaid liens against the lot if applicable. This amount should match the amount of the mortgage entered in Section VI L, as described above.

Construction-permanent: Appraised value

The appraiser must provide an as-completed” appraised value of the property. Enter the as-completed” value.

Age of documents for construction-permanent transactions

All verification documents must comply with the Age of Credit and Appraisal Documents policy in the Selling Guide. Single-closing construction transactions with credit and appraisal documents dated more than four months but not exceeding 18 months old at the time of the conversion to permanent financing are eligible for delivery if all of the following conditions were met at the time of the original closing of the construction loan:

  • The documents were dated within 120 days of the original closing date of the construction loan.

  • The LTV, CLTV, and HCLTV ratios do not exceed 70%.

  • The borrower has a minimum representative credit score of 700.

  • The loan casefile was underwritten through DU and received an Approve/Eligible recommendation.

If any one of the above conditions was not met or an eligible loan term was modified subsequent to the last DU submission, the lender must:

  • obtain updated credit documents and an appraisal update completed on an Appraisal Update and/or Completion Report (Form 1004D), and

  • re-qualify the borrowers before the mortgage loan is delivered to Fannie Mae.

Back to Top

© 2019 Fannie Mae. Trademarks of Fannie Mae.