A final rule by the Rural Housing Service (RHS) published July 22 in the Federal Register
will provide increased flexibility for the agency to facilitate and encourage single-close construction loans, which will stimulate new construction, rehabilitation and homeownership in rural areas.
Single-close construction loans allow the borrower to get a construction loan and a permanent loan at the same time. When construction is completed, the loan becomes a traditional mortgage.
The final rule will ease the financial costs of interim construction financing for non-depositary lenders (warehouse line of credit lenders or warehouse lenders) by allowing a temporary interest rate higher than the permanent note rate for interim construction financing while removing the requirement for loan modification or re-amortization once construction is complete.
Warehouse lending is a line of credit given to a loan originator. The funds are used to pay for a mortgage that a borrower uses to purchase property. The life of the loan generally extends from its origination to the time it is sold on the secondary market either directly or through securitization.
Additionally, the final rule will allow for the reserve of regularly scheduled principal, interest, taxes and insurance (PITI) payments during the construction period. The RHS will also allow single-close loans to be used for the rehabilitation of existing dwellings upon their purchase and eliminate maximum interest rate cap requirements for all single-family home loans.
The final rule goes into effect on Aug. 21, 2019, and affects single-family homes as well as small-scale multifamily buildings comprising one to four units.
For more information, contact Curtis Milton
at 800-368-5242 x8597.