Most MLOs working with new construction buyers handle end loans: the permanent mortgage placed when the builder delivers a completed home. A smaller segment handles one-time close construction-to-permanent loans that cover the build phase and convert to permanent financing at completion. Both product types have specific operational challenges that differ significantly from standard resale transactions.
End Loans From Builders
End loans are standard agency loans applied to a newly built home. Underwriting is identical to any purchase loan with one key difference: the appraisal must be supported by comparable sales data. In markets with limited new construction comparable sales, appraisers may need to adjust for age, condition, and location using older or geographically distant comps. If the comparable sales used in the appraisal are more than 12 months old, the underwriter may require updated comparables.
One-Time Close (OTC) Construction-to-Permanent
FHA, VA, and USDA all have OTC programs where a single closing covers the construction phase and converts to permanent financing at completion. The rate is locked at the construction closing. Conventional OTC products are available from Fannie Mae and Freddie Mac-approved lenders as well. The advantage is rate certainty during construction and a single set of closing costs. The disadvantage is that if the project scope changes materially, the appraisal may need to be updated.
Rate Lock Management on New Construction
- ✦Standard 30-to-60-day locks are useless if the home is 4 to 6 months from completion
- ✦Extended locks of 6 to 12 months carry additional pricing (typically 0.125% to 0.25% per month beyond 60 days)
- ✦Builders sometimes absorb extended lock costs as part of their incentive package; confirm this in writing
- ✦Float-down provisions are available from some lenders if rates drop by a defined threshold (often 0.25% or more)
- ✦Track construction milestones; lock extension fees apply if completion is delayed past the lock expiration
Aria can compare OTC construction loan options across FHA, VA, USDA, and conventional and explain rate lock strategy for different construction timelines. Ask at vicariointel.com.
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