USDA Enhances Construction To Permanent Mortgages In Pilot Program

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In a recent announcement, the Acting Administrator of Rural Housing Service (RHS) notified state directors of a new pilot program proposed to enhance certain features of the existing single family construction-to-permanent financing option.

The enhancements allow for the lender a new option to immediately pool the loan into a mortgage-backed security and eliminate the need for loan modification or re-amortization once construction is complete. This is similar to the mechanics of the popular FHA 203(k) and FNMA HomeStyle renovation loans where the construction funds are held in an escrow account with the borrower making principal and interest payments during the renovation phase.  

Additional changes to the new pilot also address questions regarding the borrower's ability to qualify using both their existing housing expenses and construction phase financing payments.  This is addressed by allowing the borrower to include a payment reserve account of up to one year of fully scheduled (amortized) principal and interest payments at the original note rate, along with taxes and insurance (PITI) and eliminates the need for a loan to modify or re-amortize once construction is complete.  

As the nation struggles with housing supply and affordability issues we have a strong belief that the mortgage industry will lead the way with solutions that combat our housing issues by making consumer construction lending mainstream.  With these new enhancements we believe that the USDA is taking giant leaps forward toward solving these issues.  

Land Gorilla works with lenders, GSEs and Government agencies in providing expertise with construction loan management and technology solutions like the Construction Loan Manager.  Contact us today to learn more about how to participate or which states will be first to offer the pilot.