Construction Loans

Construction-To-Permanent Program

Whether you are building your new dream home from the ground up or planning to renovate or expand your current one, a construction-to-permanent loan is a great option. Construction-to-permanent loans for owner-occupied single family dwellings are available with approved loan applications.


  • One-time closing costs
  • Historic low rates
  • Interest only during your construction phase
  • Financing for renovation/rehabilitation of your existing home or new construction
  • Financing Purchase or Refinance Transactions
  • Credit Score (FICO) of 680 or above is required
  • Loan Terms of 10, 15, 20 and 30 Years
  • Conforming Loan Amounts to $417,000 and Jumbo Loan Amounts up to $1,500,000+
  • Property Types: Owner Occupied Single Family Dwellings Only
  • 20% or more down-payment or equity in property
  • Adjustable Rate Mortgages (ARM’s) of 5/1, 5/5, 7/1 and 10/1



 Available Conforming – 10 Year Fixed 15 Yr Fixed* and 5/1, 5/5, 7/1 and 10/1 ARM’s;

Programs: Jumbo – 10 Yr Fixed, 15 Yr Fixed* and 5/1, 5/5, 7/1 and 10/1 JUMBO ARM’s.

(*May consider other Fixed Rate Terms on Exception Basis with add to rate.)

Eligible MA, NY, NJ, CT, RI and NH

Build Types: Available for New Homes, Renovation/Rehabilitation and Additions

Loan Limits: Conforming loans up to $417,000 and Jumbo loans $417,001 to $1,000,000**

** Loan Amounts above $1M are considered on a case-by-case basis with add to rate.

Approval is required prior to submission.

Occupancy: Owner-Occupied Single Family Dwellings and Owner-Occupied Second Homes only

No Investor Properties Allowed.

Max LTV: 80% on Primary Residences; 75% on Second Homes

  • For Refinance Loans, The maximum LTV would be the lesser of the amount of the existing mortgage loan(s) and closing costs, plus 100% of the construction/rehab costs OR80% for Primary Residences and 75% for Second Homes of the “when complete” appraised value. We will holdback 100% of the rehab/construction costs and disburse the funds based on a schedule determined by the Credit Union and the work completed.
  • For Purchase Loans: The maximum LTV is the lesser of 80% for Primary Residences and 75% for Second Homes of the purchase price of the land or property, plus 100% of the budget OR 80%/75% as applicable, of the “when complete” appraised value. We will holdback 100% of the rehab/construction costs and disburse the funds based on a schedule determined by the Credit Union and work completed.

 Max DTI: 45% when LTV/CLTV/HCLTV is lesser than or equal to 80%.

 FICO: 680 – Based on the middle score reporting on Tri-Merge Credit Report. Construction-Permanent Guidelines  

Qualify Rate The Qualifying Rate for QM/ATR purposes is the max rate occurring within the first 5 years

On ARM’s: AFTER the first payment date. 5/1 ARMS will be qualified at Max Rates as follows: of (5/1 or 5/5 ARM – Note Rate plus 2. 7/1 & 10/1 ARMS will be qualifed at Note Rate or fully indexed rate, whichever is higher. Example: As of 1/10/13 the 1 year libor is .58 and margin is 2.375 = FIR of 2.955 rounded to nearest .125 = 3.00%. This would mean qual rate is Note Rate on 7/1 and 10/1 ARM’s.

Construction The Construction period will run for Three (3), Six (6), Nine (9) or Twelve (12) months 

Phase: dependent upon the estimated time for work to be completed. This is a one-time close program which converts from Construction Phase to Permanent Phase based on a pre-determined date. The closing documents are drawn with the Permanent Phase conversation date. The Construction Phase is complete when this pre-determined date has been reached (in 3, 6, 9 or 12 months as stated above).

At this time there will be:

1) A Certificate of Occupancy and Completion Cert*;

2) A Grant of Extension to Construction Phase; or

3) Property is not completed and no extension requested and/or extension was denied.

Extension to Construction Phase:

An extension to Construction Phase will be considered on a case by case basis and require a modification to existing terms. Borrower must request an extension in writing. If granted, a fee of 1% will be charged for the extension and the modification will be produced. If an extension is requested and not approved, the remaining funds not yet disbursed will be withdrawn and will no longer be available for disbursement. If this occurs, a letter will be sent to borrower advising of such.

*Please Note: If Construction Phase is completed and funds remain, the remaining balance will be applied towards the Principal amount of the Note.

Interest This is a one-time close program (Construction-Perm), therefore rate is based upon product terms accordingly.

Rates: Loan closes under selected program/rate and Interest Rate remains the same throughout all Phases of Construction to Permanent conversion/life of loan.


  • Construction Phase – During the Construction Phase, payment is based on an Interest-Only Payment, calculated on the Advanced Amount.
  • Permanent Phase – Upon completion of Construction Phase, loan converts to Permanent Phase and Payment converts to full P&I payment.

 Additional Fees: Borrower is responsible for all Closing costs, including the following add’l fees:

 Broker may charge one-half point (.50) or more Origination fee to Borrower on all Construction-Permanent Loans.

  • Six (6) Title run-downs and Six (6) Inspection Fees will be included as part of the closing costs. THIS MUST BE DISCLOSED WITHIN THE TITLE CHARGES.
  • Broker Compensation – we allow up to one point (1.00) Origination Fee to be charged to Borrower for Broker Compensation – This is a Borrower Paid Fee, on all Construction-Permanent Loans, there is no Lender Comp piad on C to P Loans.

 Loan Disclosures: Due to the complexity of the Disclosures on Construction-Perm loans, the Disclosures must be approved by USAFCU before Broker issues them to the Borrower.

Appraisal * 1 Appraisal required for loans up to $850,000;

 Requirements: * 2 Appraisals required for loans exceeding $850,001; Please note: Appraisals are ordered by the Lender, through our AMC and must meet the Credit Union’s Appraisal Policy. Appraisals will be completed based upon Final Plans and Specifications. If two appraisals are required, the Credit Union generally utilizes the lowest appraised value.

Builder Doc Requirements:

The builder is required to provide the following documentation:

1) Contractors Insurance – Minimum of $1,000,000.00 Liability Coverage and Worker’s Compensation Insurance as required by Law;

2) Contractors License – Builder shall provide a copy of a valid Builders License appropriate for the work to be completed;

3) Permits – Proper permits must be in place for work to be done before any construction funds are advanced;

4) Contractor Questionnaire – A contractor’s questionnaire must be completed to include financial information & subcontractors.

5) Construction Contract – Fully executed contract from builder and borrower;

6) Copy of Complete Plans and Specifications and Materials Listings Required:

7) Itemized Budget of Construction Costs; The Builder will be fully reviewed to determine if they are properly insured and licensed, and have the expertise required for the work to be completed. A search of the Better Business Bureau for the state they are licensed is recommended.

Cash Reserves: Primary Residences – 2 months; Second Homes – 6 months.

Insurance: The Credit Union will be listed as first mortgagee on the homeowners insurance and the Borrower must provide an insurance binder prior to closing, with dwelling coverage equal to

replacement cost of completed dwelling or an amount sufficient to cover the total loan amount. In addition, the Borrower is required to carry Increased Liability Coverage or Builders Risk Insurance of at least One Million ($1M).

Title Insurance: Lenders title insurance up to the total amount of the loan or up to the amount of the initial advance with title policy endorsements for each advance.

Underwriting: Jumbo loans are underwritten manually utilizing FNMA Guidelines and Underwriting principals; however we also apply common sense to our Underwriting process. We evaluate all aspects of the loan and consider compensating factors in our underwriting analysis and approval process. We are able to be more flexible at times, especially when dealing with unique loans/scenarios, as we Portfolio most of our Jumbo loan products.

For adjustable rate loans, the qualifying rate used will be the same qual rate required by FNMA for the particular ARM program. For ARM loans with terms of 5 years or less, we will use a qualifying rate of the note rate plus 2% or the fully indexed rate, whichever is greater. ARM loans of 7 years or greater will be qualified at the note rate.

Exceptions: Any Exceptions to Policy require Approval by Senior Management prior to loan submission. Broker must submit the Exception Approval Template for consideration and if approved, rate adjustment may apply.

Please Note: This Program is not offered to Builders directly, the loan must be obtained by the Borrower who will be Owner-Occupying the Property as their Primary Residence or Second Home. This Program is available for the purpose of building a new residence or rehabilitating and/or modifying existing residence.


Frequently Asked Questions: Construction to Permanent Loans

Rate and Term

1) How long is the construction period? Between 3 and 12 months.

2) Can I get an extension? Yes but a fee of up to 1% can apply.

3) What is my rate during construction period? The same as your permanent rate.

4) What will my payments be during construction period? Calculated monthly based on interest only and the amount of the loan advanced.

5) What happens if construction finishes ahead of schedule? The construction term is set and so is the first P&I payment so it just means you will have extra Interest only payments until the permanent loan starts.

6) What happens if the full amount of the loan is not needed? If the borrower doesn’t need the full amount due to a bonus or other reason that does not affect the value of the property, then borrower does not have to take the full budgeted amount. The payment on the permanent loan will remain the same as this is preset. The loan would just get paid off quicker.

7) What happens if costs exceed the budgeted amount? Plans and Builder contract should be finalized and cost over runs should be rare. If there is the possibility of over runs the borrower should have sufficient liquid reserves to pay for them.


1) What documentation does the builder need to provide? Builder will provide if applicable a certified as built plot plan, builders license, Liability & workman’s compensation insurance, permits, Contractor Questionnaire,

Construction contract, copy of complete plans and specifications with material listings and an itemized budget. 

2) Can a builder GC their own project? The Credit Union does not allow construction to permanent loans where the borrower is the GC of their own project.

3) Is the builder reviewed? Yes. The builder should be properly licensed and insured for the state or county in which the home is built.

4) What happens if the Builders contract or budget does not match the Credit Union’s disbursement schedule? In most cases the disbursement schedule may not match. The Credit Union uses it’s own disbursement schedule based on completed work only but will try to get it as close as possible. Any short fall will be covered by the borrower and reimbursed when completed.


1) What are the maximum LTV’s for this product? 80% for primary residences and 75% for second homes.

2) What is the minimum credit score? The minimum credit score is 680.

3) What states are eligible for this product? MA, NY, NJ, CT, RI, and NH.

4) What is the maximum DTI? 45.%

5) Are exceptions made? Any exceptions made to normal guidelines are done on a case by case basis and may have additional pricing considerations.

6) How many appraisals are required? If the loan amount exceeds $850,000.00 two appraisals are required.

7) What are reserve requirements? Borrower will be required to have the ability to maintain their current housing expenses in addition to the new loan during the construction phase or have sufficient reserves to pay both. They will also have at least 6 months of housing reserves in liquid assets.

Construction advances

1) How does a borrower receive the construction advances? The borrower should have a checking account set up and authorize the construction advances to this account in order to pay the builder directly.

2) What is the process to get a construction advance? The borrower has the builder complete a requisition form and submit to the Credit Union. An inspection is done by appraiser and title update is done. BASED ON

COMPLETED WORK ONLY and the Credit UNION’S OWN DISBURSEMENT SCHEDULE The funds allocated for that phase will be released to the borrowers checking account. The borrower then pays the

builder by check. Upon payment from the borrower the builder will sign a lien release for the total amount given to him to date. In the end the builder will have signed a lien release for the total amount of the contract.

3) How are change orders handled? Change orders that decrease the value of the property are prohibited. Change orders that increase the value are required to be paid by the borrower with proof of payment.

4) How many draws does the credit Union allow? The Credit Union allows for 6 but does not limit the number of draws as long as they are reasonable.

Additional Costs

1) What are the additional closing costs? The credit union charges for 6 title rundowns and 6 re-inspections for construction advances at closing. The credit Union also charges ½ point for brokered loans and 1 point for

Member direct loans which are paid by borrower. 

2) Are their additional costs after closing? No. The 6 title rundowns and reinspections are disclosed on GFE and collected at closing.

3) Who pays the broker fee? The broker fee is borrower paid. A broker agreement is signed with borrower.

4) Can Closing costs be included in loan amount? If the borrower currently owns the property the existing mortgages as well as all closing costs can be included in the loan amount as long at the future value provides an LTV

within the program guidelines.

Most common problems with loan approval or disbursements

1) Plans and specifications that have changed or not complete. Any change that affects the value can cause the loan to be delayed, denied or disbursements to be refused. The appraisal and approval of the loan is based off of these plans.

2) A Builders Contract with large deposit requirements that are not based on work Completed. . The Credit Union’s disbursements are BASED ON COMPLETED WORK ONLY and the Credit UNION’S OWN

DISBURSEMENT SCHEDULE. The Credit Union may deny a loan with a builder contract that is not based on completed work or require it to be modified.

3) Work change orders. These are prohibited if they decrease the value or required to be paid by borrower with proof of payment if they are upgrades.

4) Contractor Liens. No disbursements will be made if a lien is found. This must be resolved before proceeding.