12.13 SINGLE-CLOSE FEATURES (05/17/17)

© RHS HB-1-3555 SFH Guaranteed Loan Program Technical Handbook

A single-close loan combines the features of a construction loan, which is a shortterm interim loan for financing the cost of construction, and the traditional long-term permanent residential mortgage. The approved lender makes the loan to an eligible applicant. Since there is only one closing, which can save considerable closing costs, for upfront guarantee purposes, this type of loan is considered a purchase transaction by the Agency. Closing occurs prior to the start of construction. At closing funds are disbursed to cover the cost of land and applicable closing costs subject to the maximum loan to value. The lender will be responsible for managing the disbursement of the loan proceeds to the builder or contractor for the balance of mortgage proceeds, known as the “lenders construction holdback”, as construction progresses. The lender must obtain written approval from the borrower prior to each draw payment.

The permanent mortgage loan interest rate, which is used for underwriting, is established at closing.

The Loan Note Guarantee may be issued once the interim construction loan is closed without waiting for completion of the subject property. An optional checklist, Attachment 12-C of this Chapter, has been developed to assist lenders with their project review.