How Single-Closing Construction-to-Permanent Loans Work
A single-closing construction-to-permanent loan lets you handle both the construction financing and your permanent mortgage in one transaction. You sign all the paperwork once at the beginning, but the loan has two distinct phases.
During construction, you make interest-only payments on the money drawn to pay your builder. Your lender manages all the disbursements to contractors and suppliers. Once construction finishes, the loan automatically converts to a regular mortgage with principal and interest payments.
Say you're building a $400,000 home on a $100,000 lot. You close on a $450,000 construction-to-permanent loan at the start. During the 12-month build, your lender releases funds in stages as work progresses. You pay interest only on the amounts drawn. When construction completes, your loan converts to a standard 30-year mortgage for the full $450,000.
The key advantage is convenience — one application, one closing, one set of closing costs. The downside is less flexibility if your needs change during construction.
Construction Period Limits and Structure
Fannie Mae sets strict time limits on the construction phase. The total construction period cannot exceed 18 months, and no single period within that timeframe can be longer than 12 months.
Your lender might structure this as three 6-month periods, one 12-month period followed by a 6-month extension, or six 3-month periods. The specific structure depends on your construction timeline and your lender's preferences.
These limits are firm — Fannie Mae grants no exceptions. If your construction will take longer than 18 months, you'll need a two-closing transaction instead, where you get separate construction financing first and then apply for a permanent mortgage when the home is done.
Purchase vs. Limited Cash-Out Refinance Structure
How your loan gets structured depends on whether you already own the building lot when you apply.
If you don't own the lot yet, your loan works as a purchase transaction. The construction loan proceeds buy the lot and fund the construction. This is the most common scenario for people buying lots from builders or developers.
If you already own the lot, your loan gets structured as a limited cash-out refinance. The proceeds pay off any existing liens on the lot and fund construction. You might be in this situation if you bought raw land years ago or inherited family property.
Cash-out refinances are not allowed. You cannot use this loan type to pull cash out of land you already own free and clear.
How Loan-to-Value Ratios Get Calculated
The LTV calculation method depends on your transaction structure and affects how much you can borrow.
For purchase transactions, your LTV is calculated by dividing your loan amount by the lesser of the purchase price (lot plus construction costs) or the "as completed" appraised value. If you're buying a $100,000 lot and spending $300,000 on construction, your LTV is based on $400,000 or the appraised value, whichever is lower.
For limited cash-out refinances, your LTV is simply your loan amount divided by the "as completed" appraised value. The original lot purchase price doesn't factor into this calculation.
Standard Fannie Mae LTV limits apply based on your property type and loan program. Most conventional loans max out at 80% LTV without mortgage insurance, though some programs allow higher ratios.
Required Documents and Evidence
You'll need the standard mortgage application documents plus construction-specific paperwork.
Standard documents include your loan application, income verification (pay stubs, tax returns, W-2s), asset statements, credit report, and employment verification. All credit documents must be no more than 4 months old at closing.
Construction-specific documents include detailed building plans and specifications, a construction contract with your builder, a construction timeline, and cost breakdowns for materials and labor. Your lender will also require an "as completed" appraisal that estimates the home's value when finished.
At conversion to permanent financing, you'll need an Appraisal Update and Completion Report (Form 1004D) confirming construction is finished and the home's current value. If this appraisal shows the value declined, you'll need a full new appraisal and may need to requalify for the loan.
When You Need to Requalify
Several situations trigger requalification requirements before your loan converts to permanent financing.
You must requalify if your credit documents are more than 4 months old at conversion time, unless you meet specific exceptions. The exception applies if your original LTV was 95% or lower and your loan received a DU Approve/Eligible recommendation. In that case, documents can be up to 18 months old at conversion.
You also must requalify if the completion appraisal shows your home's value declined, which would increase your LTV ratio. Any loan modifications that change terms beyond the allowed tolerances also trigger requalification.
During requalification, your lender pulls updated credit reports, verifies current income and employment, and resubmits your loan to Fannie Mae's automated underwriting system. You must still receive an Approve/Eligible recommendation for the loan to be saleable to Fannie Mae.
Allowed Loan Modifications During Construction
You can modify certain loan terms after closing but before conversion to permanent financing, though options are limited.
Permitted modifications include changes to interest rate, loan amount, loan term, and switching from adjustable-rate to fixed-rate amortization. You cannot modify other terms like the property address, borrower names, or loan purpose.
Loan amount increases are only allowed to cover documented construction cost overruns. If you increase the loan amount, your lender must obtain title insurance endorsements and ensure both the original and final loan amounts meet current conforming loan limits.
Small modifications may not require full reunderwriting. Interest rate changes within 0.375% and loan amount increases up to $5,000 or 2% (whichever is less) may qualify for tolerance exceptions. Larger changes require complete reunderwriting.
Common Complications and Gotchas
Construction delays create the biggest headaches with single-closing loans. If your build runs past the 18-month maximum, your loan becomes ineligible for Fannie Mae purchase, which could force your lender to keep it in portfolio or demand immediate payoff.
Weather delays, permit issues, and contractor problems can all push construction past your planned timeline. Build buffer time into your construction schedule and consider a two-closing structure if your project is complex or your timeline is tight.
Document age requirements catch many borrowers off guard. If construction takes longer than expected, your 4-month-old credit documents may expire before conversion. Getting updated documents and requalifying adds time and potential complications to your closing.
Appraisal issues at completion can derail your loan. If the finished home appraises for less than expected, your LTV increases and you may no longer qualify for the loan terms you locked in. Market changes during construction can affect values, especially in volatile markets.
Cost overruns are common in construction but can only increase your loan amount if properly documented. Keep detailed records of all change orders and additional expenses. Undocumented cost increases cannot be financed through loan modifications.
References
For the official guidelines, see B5-3.1-02: Conversion of Construction-to-Permanent Financing: Single-Closing Transactions in the Fannie Mae Selling Guide.
Mortgage guidelines change. Stay current.
Fannie Mae and Freddie Mac update their rules several times a year. Get notified when changes affect your mortgage eligibility, required documents, or loan terms.
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Original Fannie Mae Guideline Text
B5-3.1-02, Conversion of Construction-to-Permanent Financing: Single-Closing Transactions (11/05/2025)
Single-Closing Transaction Overview
Terms of Construction Loan Period for Single-Closing Construction-to-Permanent Mortgages
Eligible Loan Purposes for Single-Closing Construction-to-Permanent Mortgages
Calculating the LTV Ratio for Single-Closing Construction-to-Permanent Mortgages
Down Payment Requirements for Single-Closing Purchase Transactions
Modifications of Single-Closing Construction-to-Permanent Mortgages
Underwriting Single-Closing Construction-to-Permanent Mortgages
Loan Conversion Documentation Options
Uniform Appraisal Dataset (UAD) 3.6 Policy
Single-Closing Transaction Overview
Single-closing transactions may be used for both the construction loan and the permanent financing if the borrower wants to close on both the construction loan and the permanent financing at the same time. When a single-closing transaction is used, the lender will be responsible for managing the disbursement of the loan proceeds to the builder, contractor, or other authorized suppliers.
Because the loan documents specify the terms of the permanent financing, the construction loan will automatically convert to a permanent long-term mortgage loan upon completion of the construction.
Loans that combine construction and permanent financing into a single transaction cannot be purchased by Fannie Mae until the construction is completed and the terms of the construction loan have converted to the permanent financing.
Manufactured homes must meet all applicable requirements, including compliance with
.
Lenders must use SFC 151 when delivering single-closing construction-to-permanent loans to Fannie Mae (and any other SFCs that may apply to the transaction).
Terms of Construction Loan Period for Single-Closing Construction-to-Permanent Mortgages
For all single-closing construction-to-permanent transactions, the construction loan must be structured as a temporary loan exempt from the ability to repay requirements under Regulation Z. The construction loan period for single-closing construction-to-permanent transactions may have no single period of more than 12 months and the total period may not exceed 18 months. Lenders may, when needed to complete the construction, provide an extension to the original period to total no more than 18 months but the documents may not indicate an initial construction period or subsequent extension of more than 12 months. After conversion to permanent financing, the loan must have a loan term not exceeding 30 years (disregarding the construction period).
As examples, lenders may structure the construction loan period as follows:
three 6–month periods,
one 12–month period and one 6–month period, or
six 3–month periods.
Exceptions to the 12-month and 18-month periods will not be granted. The above construction period requirements do not apply to two-closing construction-to-permanent transactions. If the construction loan period exceeds the requirements above, the lender must process the loan as a two-closing construction-to-permanent transaction in order for the loan to be eligible for sale to Fannie Mae (see
).
Eligible Loan Purposes for Single-Closing Construction-to-Permanent Mortgages
A single-closing construction-to-permanent mortgage loan may be closed as:
a purchase transaction, or
a limited cash-out refinance transaction.
When a purchase transaction is used, the borrower is not the owner of the lot at the time of the first advance of interim construction financing, and the borrower is using the proceeds from the interim construction financing to purchase the lot and finance the construction of the property.
When a limited cash-out refinance transaction is used, the borrower must have held legal title to the lot before they receive the first advance of interim construction financing. The borrower is using the proceeds from the construction financing to pay off any existing liens on the lot and finance the construction of the property. This type of transaction is not a “true” limited cash-out refinance whereby the borrower refinances a loan(s) that was used to purchase a completed property; however, all other requirements for limited cash-out refinances apply. See
and the limited cash-out refinance requirements in .
Note: Cash-out refinance transactions are not eligible for single-closing construction-to-permanent mortgages.
Calculating the LTV Ratio for Single-Closing Construction-to-Permanent Mortgages
Single-closing construction-to-permanent mortgages are subject to the purchase and limited cash-out refinance maximum LTV, CLTV, and HCLTV ratios (based on property type) provided in the
, as applicable.
The LTV ratio calculation differs depending on whether the transaction is a purchase or a limited cash-out refinance, as shown in the table below.
Purchase
The borrower is not the owner of record of the lot at the time of the first advance of interim construction financing.
Divide the loan amount of the construction-to-permanent financing by the lesser of:
The loan amount of a manufactured home can include all allowable costs as listed in
Limited Cash-out Refinance
The borrower is the owner of record of the lot at the time of the first advance of interim construction financing.
Divide the loan amount of the construction-to-permanent financing by the “as completed” appraised value of the property (the lot and improvements).
Down Payment Requirements for Single-Closing Purchase Transactions
The borrower must use their own funds to make the minimum borrower contribution unless:
the LTV, CLTV, or HCLTV ratio is less than or equal to 80%; or
the borrower is purchasing a one-unit principal residence and meets the requirements to use gifts, donated grant funds, or funds received from an employer to pay for some or all of the borrower's minimum contribution. See ; ; and , for additional information.
Modifications of Single-Closing Construction-to-Permanent Mortgages
If the terms of the permanent financing change after the original closing date of the construction loan, the loan may be modified to reflect the new terms if it meets all of the following criteria:
The modification must take place prior to or at the time of conversion.
Only the following loan terms may be modified in a single-closing transaction:
interest rate,
loan amount,
loan term, and
amortization type.
The only amortization change permitted is from an adjustable-rate amortization to a fixed-rate amortization.
Changes made to any other loan terms will require a two-closing construction-to-permanent transaction.
The loan must be underwritten based on the terms of the loan as modified and delivered to Fannie Mae. If the final (modified) terms of the loan do not match the last submission to DU, the loan must be resubmitted to DU (subject to Underwriting Single-Closing Construction-to-Permanent Mortgages and Requalification Requirements described below).
Increases to the loan amount are permitted only as necessary to cover documented increased costs of construction of the property.
If the modification results in an increase in the original loan amount, the lender remains responsible for all standard title insurance requirements. In addition, the lender must obtain an endorsement to the title insurance policy that
extends the effective date of the coverage to the date of the recording of the modification agreement;
increases the amount of the policy to the original loan amount, as increased; and
confirms that the lien of the mortgage, as modified, continues to be a first lien.
Note: Both the original construction loan amount at closing and the final modified loan amount delivered to Fannie Mae must meet the loan limits currently in effect.
The original construction loan must be documented on Fannie Mae uniform instruments or substantially similar documents, subject to the non-standard document representations and warranties.
The modification must be documented on one of the following:
Loan Modification Agreement (Providing for Fixed Interest Rate) (Fannie Mae Form 3179);
Loan Modification Agreement (Providing for Adjustable Interest Rate) (Fannie Mae Form 3161); or
A substantially similar document, subject to the non-standard document representations and warranties.
Loan Modification Agreement (Providing for Fixed Interest Rate) (
Underwriting Single-Closing Construction-to-Permanent Mortgages
The lender must underwrite a single-closing construction-to-permanent loan based on the terms of the permanent financing. If the permanent financing terms are modified, and no longer reflect the terms on which the underwriting was based, the loan must be re-underwritten, subject to certain re-underwriting tolerances. The loan data at delivery must match the data in the final submission of the loan casefile to DU.
As described in the table below, re-underwriting tolerances may be applied if the interest rate or loan amount was modified. (All other modifications require re-underwriting.)
Age of Credit Documents
All credit documents must be no more than four months old on the note date (that is, the closing date of the construction loan). Additionally, income, employment, and credit report documents must be no more than four months old at the time of conversion to permanent financing. As an exception, these documents may be more than four months but not exceeding 18 months old at the time of the conversion to permanent financing if the following conditions were met at the time of the original closing of the construction loan:
The LTV, CLTV, and HCLTV ratios do not exceed 95%.
The loan casefile was underwritten through DU and received an Approve/Eligible recommendation.
If any one of the above conditions was not met or an eligible loan term was modified subsequent to the last DU submission, the lender must
obtain updated income, employment, and credit report documents no more than four months prior to conversion; and
re-qualify the borrower(s) in accordance with the Requalification Requirements below.
Updated asset documentation is not required at the time of conversion to permanent financing (regardless of the age of asset documents) unless upon requalification, either of the following applies:
more reserves are required than were required at the time of original qualification
the full amount of reserves must then be reverified, or
the borrower chooses to bring additional funds to the transaction
the additional funds must come from an eligible source and be documented.
Impact on Validation through the DU Validation Service
If updated credit documents are required to be obtained after the original closing of the construction loan, any validation of income, employment, or assets is no longer applicable. Updated validation reports must be obtained, and the loan casefile resubmitted to DU, and the loan must convert to permanent financing by the Close By Date stated in the DU validation message in order for validation and the associated waiver of enforcement relief of representations and warranties to apply.
See
for additional information.
Age of Appraisal Documents
For all single-closing transactions, the effective date of the appraisal must be no more than four months prior to the note date (that is, the closing date of the construction loan). Additionally, at the time of completion of construction, an Appraisal Update and/or Completion Report (
) must be completed in its entirety including the appraisal update and certification of completion. If the appraiser indicates on the Form 1004d that the property value has declined, then the lender must obtain a new appraisal for the property and requalify the borrower using the updated LTV ratio per the Requalification Requirements, below.
See
for additional information.
Requalification Requirements
Requalification of the borrower(s) is required at the time of conversion to permanent financing if
the LTV ratio increased due to a decline in property value,
updated credit documents were obtained, or
as otherwise required per the modified loan term in the table above.
To be eligible for purchase by Fannie Mae, the loan must retain an Approve/Eligible recommendation after resubmission to DU (or be eligible per the
if manually underwritten).
When requalification is required
the LTV ratio must be adjusted based on the updated appraisal, if applicable;
if credit documents exceed the four (or 18) month age of documentation requirement, the updated income, credit, and liability information must be considered; and
the loan data at delivery must match the data considered in the final requalification of the loan.
Loan Conversion Documentation Options
The construction loan may be converted into a permanent loan in either of the following ways:
Option 1: A construction loan rider must be used to modify Fannie Mae’s uniform instrument that will be used for the permanent loan. The rider must state the construction loan terms, and the construction-related provisions of the rider must become null and void at the end of the construction period and before the permanent loan is sold to Fannie Mae. Because the permanent loan cannot be sold before it is scheduled to begin amortizing, the lender will need to amend the construction loan rider, and the accompanying uniform instrument, if the construction is completed sooner or later than originally anticipated. The amendment(s) should provide the new dates on which amortization for the permanent loan will begin and end. The lender also will need to record the amended documents before the permanent loan is sold.
Option 2: A separate modification agreement must be used to convert the construction loan into permanent financing. This agreement must be executed and recorded in the applicable jurisdiction before the permanent loan is sold to Fannie Mae.
The lender must include the applicable conversion document in its loan submission package. When amended documents are recorded in connection with a construction loan rider, the lender also must include a copy of the original documentation that the borrower signed.
Uniform Appraisal Dataset (UAD) 3.6 Policy
Lenders using UAD 3.6 must follow the requirements in the
. SEL-2019-07
