What Construction-to-Permanent and Renovation Mortgages Cover
Construction-to-permanent mortgages let you build a new home with a single loan application and closing process. Instead of getting separate construction financing and then applying for a permanent mortgage later, you handle both phases upfront.
Say you want to build a custom home on a lot you already own. With a construction-to-permanent loan, your lender approves you for both the construction phase (when you need money to pay contractors) and the permanent phase (your regular mortgage after the house is done). You apply once, get approved once, and lock your interest rate from the start.
Renovation mortgages work similarly but for major improvements to existing homes. Think whole-house renovations, additions, or structural changes that require permits and professional contractors.
Two Main Types of Projects
Construction-to-permanent mortgages finance completely new construction. You can use the money to buy land, build a site-built home from scratch, or purchase and install a manufactured home on a permanent foundation.
For purchase transactions, the construction loan proceeds can pay for the land, all construction costs, site preparation, and even removing an old manufactured home if needed. For refinances, you can pay off existing liens on the land, cover construction costs, and handle closing costs.
Renovation mortgages are for existing homes that need major work. The loan proceeds pay for renovation costs on site-built homes you already own. You cannot use renovation mortgages for manufactured homes.
Property and Ownership Requirements
You must own the land before construction or renovation begins. Fannie Mae accepts several ways you might have acquired the property: purchase, inheritance, gift, or through a legal award like a divorce settlement.
The ownership requirement is firm. You cannot start construction on land you are still trying to buy or where ownership is unclear. If you are buying land as part of your construction project, that purchase must close before any construction work begins.
For leasehold properties, your lease must meet the requirements in [[Chapter 5704]]. This typically means long-term leases with specific terms that protect the lender's interest.
Borrower Continuity Rules
The person who takes the construction loan must be the same person who takes the permanent mortgage. Fannie Mae requires this continuity to ensure the borrower who managed the construction process is the one responsible for the permanent debt.
Limited exceptions exist for major life changes. If a borrower dies or divorces during construction, the remaining borrower can proceed alone. You can also add a related person (like a spouse) to the permanent mortgage, but all borrowers must plan to live in the home as their primary residence.
Builders and developers cannot be obligated on the construction financing unless they plan to live in the finished home. This prevents situations where a builder's financial problems could complicate your mortgage.
Completion Requirements Before Closing
All construction or renovation work must be finished before your permanent mortgage closes. Fannie Mae does not allow partial completions or punch lists that extend past closing.
For manufactured homes, this includes complete installation with permanent utility connections and any site-built improvements like garages or decks. Your lender needs a satisfactory completion report confirming everything is done.
The only exception applies to certain site-built homes meeting specific requirements in [[Section 5601.3]]. These cases are rare and involve very specific circumstances.
Required Documentation
Your lender needs extensive paperwork to document both the construction phase and permanent financing. The mortgage file must include proof that your loan qualifies as a construction-to-permanent or renovation mortgage.
Documentation of actual construction or renovation costs is critical. This includes purchase contracts, detailed plans and specifications, receipts, invoices, and lien waivers from contractors. Your lender must validate that the money was spent appropriately.
You need closing statements for both the construction financing and permanent financing phases. For manufactured homes, add the manufacturer's invoice and purchase agreement.
Your lender must also document their calculation of the total project cost, showing how they arrived at your loan amount.
What Loans Are Not Eligible
Several mortgage types cannot use construction-to-permanent or renovation financing. Community land trust mortgages, government mortgages (like VA or USDA), and properties with income-based resale restrictions are all ineligible.
Special purpose cash-out refinance mortgages also cannot be structured as construction-to-permanent loans. These restrictions exist because the construction financing structure conflicts with the specific requirements of these other programs.
Common Complications
The biggest challenge is timing. Construction projects often run over schedule, but your permanent mortgage cannot close until everything is complete. Weather delays, permit issues, or contractor problems can push your closing date back.
Cost overruns create another problem. If construction costs exceed your approved loan amount, you need to cover the difference with your own funds. Your lender cannot increase the permanent mortgage amount after construction begins.
Borrower changes during construction can complicate the process. While Fannie Mae allows some exceptions, any changes require lender approval and may affect your loan terms.
Documentation gaps cause delays at closing. Missing receipts, incomplete lien waivers, or unclear cost breakdowns can prevent your permanent mortgage from closing on schedule.
References
For the official guidelines, see 4602.1: Construction to Permanent Mortgages and Renovation Mortgages 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 Freddie Mac Guideline Text
This section is effective for Mortgages with Application Received Dates on or after February 4, 2026. For Mortgages with Application Received Dates prior to February 4, 2026,
see prior version of Chapter 4602
.
Bulletin 2025-7
, which announced the policy requirements for Uniform Appraisal Dataset (UAD) 3.6. Sellers may submit to the Uniform Collateral Data Portal
®
appraisal reports that use UAD 3.6 before the mandatory effective November 2, 2026 version of this section.
The requirements of this section apply to all Construction to Permanent Mortgages and Renovation Mortgages. Additionally, One-Time Close transactions must meet the requirements in
4602.2
and Two-Time Close transactions must meet the requirements in
Section 4602.3
.
This section contains requirements related to:
Ineligible Mortgages
Eligible use of Interim Construction Financing proceeds
Borrower eligibility
Completion status of the Mortgaged Premises
Mortgage file documentation
Seller-Owned Modified Mortgages and Seller-Owned Converted Mortgages
(a)
Eligible Mortgages
Mortgages must be First Lien Mortgages and may be any Mortgage Product or offering eligible under the Guide unless specifically described as ineligible in this section.
(b)
Ineligible Mortgages
The following Mortgages are ineligible as Construction to Permanent Mortgages and Renovation Mortgages:
Government Mortgages
Mortgages secured by properties subject to income-based resale restrictions
Special purpose cash-out refinance Mortgages
(c)
Eligible use of Interim Construction Financing proceeds
For
purchase transaction Mortgages
, the proceeds of the Interim Construction Financing may be used as described in the table below:
Eligible use of Interim Construction Financing proceeds
Renovation Mortgage
Purchase the land or acquire a leasehold interest in the land
Pay construction costs of the site-built home or Manufactured Home
Pay costs for site preparation, including the removal of an existing Manufactured Home
For Mortgages secured by Manufactured Homes, acquire the Manufactured Home and pay construction costs, including costs to affix the Manufactured Home to a permanent foundation
Purchase the site-built home
Pay renovation costs of the site-built home
For
refinance Mortgages
, the proceeds of the Interim Construction Financing may be used as described in the table below:
Eligible use of Interim Construction Financing proceeds
Pay off any existing liens on the land
Pay construction costs of the site-built home or Manufactured Home
Pay costs for site preparation, including the removal of an existing Manufactured Home
For Mortgages secured by Manufactured Homes, acquire the Manufactured Home and pay construction costs, including costs to affix the Manufactured Home to a permanent foundation
Pay all Closing Costs
Pay off any existing liens on the land and on the improvements
Pay renovation costs of the site-built home
(d)
Permanent Financing proceeds
Permanent Financing proceeds are used to replace Interim Construction Financing after construction or renovations are complete and must not be used for the purpose of making a single disbursement of funds to a builder or contractor or for the assumption of an existing Mortgage.
(e)
Construction to Permanent Mortgage
must be secured by:
A newly built or constructed 1- to 4-unit site-built home, or
A newly purchased Manufactured Home that has never been attached to a foundation
Renovation Mortgage
must be secured by an existing 1-to 4-unit site-built home.
Prior to the start of construction or renovation work, the Borrower must own the land or Mortgaged Premises in fee simple or have a leasehold estate meeting the requirements of
Chapter 5704
. The Borrower may have acquired the land through a purchase, inheritance, gift or legal award in accordance with a final judgment or decision from a legal body (e.g., court, jury, judge or arbitrator) such as in a case of divorce, separation or dissolution of a domestic partnership.
(f)
Borrower eligibility
The Borrower on the Permanent Financing must be the Borrower on, and obligated to repay, the Interim Construction Financing, and any other outstanding prior financing, including installation financing or outstanding prior Mortgages.
Exceptions:
A Borrower may be omitted in the event of death or divorce
A Borrower who is a Related Person may be added, provided that all Borrowers on the Permanent Financing are owner-occupants of the Mortgaged Premises and considered in the underwriting of the Permanent Financing
The builder/developer must not be obligated to repay the Interim Construction Financing or any Mortgage on the land or the improvements except when the builder/developer is the Borrower on the Permanent Financing and will occupy the Mortgaged Premises as their Primary Residence.
(g)
Completion status of the Mortgaged Premises
All improvements to the Mortgaged Premises must be fully completed before the Settlement Date, except for Mortgages secured by site-built homes meeting the requirements in
Section 5601.3
.
For Manufactured Homes, the installation must be fully complete, including permanent utility connections and construction of any site-built improvements such as garages, decks, or porches, before the Settlement Date as evidenced by a satisfactory completion report.
For both site-built homes and Manufactured Homes, the Seller must obtain a completion report in accordance with the requirements in
Section 5605.8
.
(h)
Mortgage file documentation
For Construction to Permanent Mortgages and Renovation Mortgages, the Mortgage file must include:
Documentation that supports classification of the Mortgage as a Construction to Permanent Mortgage or a Renovation Mortgage
Sufficient documentation (e.g., purchase contracts, plans and specifications, receipts, invoices, lien waivers) on which to validate the actual cost to construct or renovate the home
A document that clearly shows the Seller’s calculation of the purchase price and/or cost to construct
The Settlement/Closing Disclosure Statement or an alternative form required by law evidencing all costs to homebuyer and property seller for the Interim Construction Financing
The Settlement/Closing Disclosure Statement for the Permanent Financing
For a Mortgage secured by a Manufactured Home, the manufacturer’s invoice and the Manufactured Home Purchase Agreement
(i)
Seller-Owned Modified Mortgages and Seller-Owned Converted Mortgages
Seller-Owned Modified Mortgages and Seller-Owned Converted Mortgages (as described in
Chapter 4402
) may not be used to modify or convert Interim Construction Financing to Permanent Financing.
After the Effective Date of Permanent Financing, if the terms of the Permanent Financing have been modified or if an ARM converted to a fixed-rate Mortgage, the resulting Mortgage is a Seller-Owned Modified Mortgage or Seller-Owned Converted Mortgage, as applicable, and must meet the requirements of
Chapter 4402
and other provisions related to these Mortgages.
(j)
Exhibit 19, Credit Fees
, for Credit Fees related to Construction to Permanent Mortgages and Renovation Mortgages. Credit Fees are paid in accordance with the Credit Fee provisions stated in
Chapter 6303
.
