New USDA Pilot Program Enhances Construction To Permanent Loans

Shannon Faries

UPDATE 8/20/2019: For updated information on the USDA Single Family Loan Programs, see this blog.

In a recent announcement, the acting administrator of the USDA 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.

1. New option for lenders to immediately pool the loan into a mortgage-backed security.

This eliminates 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.

2. The new pilot address questions regarding the borrower’s ability to qualify for a USDA construction loan 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.

3. More lenders can qualify to participate in the USDA Single-Family Construction to Permanent Loan Pilot Program.

Lenders can meet the requirements if they employ, “a construction loan management company, like Land Gorilla, as their agent.” Previously, to meet USDA RHS requirements, lenders had to have staff who could certify experience in making and administering construction loans. This typically was a long, drawn out process.

As the nation struggles with housing supply and affordability issues, the mortgage industry has an opportunity to lead the way with solutions that combat our housing issues by making consumer construction lending mainstream. With these new enhancements, the USDA Rural Housing is taking giant leaps forward toward solving these issues.

NEXT STEPS

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.