source:
  type: guide
  id: hud-4000-1-ii-j-construction-to-permanent
  authority: FHA Single Family Housing Policy Handbook 4000.1, Part II — j. Construction
    to Permanent (09/20/2021)
  description: FHA Single Family Housing Policy Handbook 4000.1, Part II — j. Construction
    to Permanent (09/20/2021).
  coverage_tier: operative
obligations:
- id: hud-4000-1-ii-j-construction-to-permanent-full
  canonical_id: hud-4000-1-ii-j-construction-to-permanent-full
  section: FHA Single Family Housing Policy Handbook 4000.1, Part II — j. Construction
    to Permanent (09/20/2021)
  type: do
  tags:
  - regulator-direct
  - fha
  - hud-handbook
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: FHA Single Family Housing Policy Handbook 4000.1, Part II — j. Construction
      to Permanent (09/20/2021)
    source_class: hud-handbook
    source_url: https://www.hud.gov/hud-partners/single-family-handbook-4000-1
    snapshot_id: 8c03836f77f317e1
    fetched_at: '2026-05-23T00:28:40Z'
    content_hash: sha256:411430f29b13f9b54a2ebb0e6f6e7087ecd2b90d0da22eb0c8c792eaa2d7d0df
    paragraph_quote: 'j. Construction to Permanent (09/20/2021) i. Definition Construction
      to Permanent (CP) refers to the construction of a dwelling on land owned or
      being purchased by the Borrower. The CP program combines the features of a construction
      loan with that of a traditional long-term permanent residential Mortgage using
      a single mortgage closing prior to the start of construction. A construction
      loan refers to a short-term interim loan for financing the cost of construction.
      ii. General Eligibility The Borrower must have contracted with a builder to
      construct the dwelling. The builder must be a licensed general contractor. The
      Borrower may act as the general contractor, only if the Borrower is also a licensed
      general contractor. iii. Property Eligibility The Borrower must either be purchasing
      the land at the closing of the construction loan, or already own the land. iv.
      Calculating Maximum Mortgage Amount The Mortgagee must use the lesser of the
      appraised value or the documented Acquisition Cost to determine the Adjusted
      Value. The maximum mortgage amount is calculated using the appropriate purchase
      Loan-to- Value (LTV) percentage of the lesser of the appraised value or the
      documented Acquisition Cost. The documented Acquisition Cost of the Property
      includes: • the builder’s price (includes cost of land if being purchased from
      builder), or the sum of all subcontractor bids and materials (if land is already
      owned by the Borrower); • Borrower-paid options and construction costs not included
      in the builder’s price to build; • closing costs associated with any interim
      financing of the land, and • either of the following: o for land that is not
      yet purchased or has been owned six months or less at case number assignment,
      the lesser of the cost of the land or appraised value of the land; or II. ORIGINATION
      THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward
      Mortgages 8. Programs and Products - Construction to Permanent (09/20/2021)
      Handbook 4000.1 479 Last Revised: 11/26/2025 o for land that has been owned
      for more than six months at case number assignment or was received as an acceptable
      Gift, the appraised value of the land. For Manufactured Housing, the builder’s
      price to build includes the sum of the cost of the unit(s), the cost to transport
      the unit from the dealer’s lot to the installation site, and all on-site installation
      costs. v. Minimum Required Investment (A) Standard The Borrower may utilize
      any cash investment in the Acquisition Cost of the Property or land equity to
      satisfy the Minimum Required Investment (MRI) in accordance with Calculating
      Maximum Mortgage Amount. (B) Required Documentation The Mortgagee must document
      the cash investment was from an acceptable source of funds in accordance with
      TOTAL or manual underwriting requirements as applicable. vi. Required Documentation
      The Mortgagee must obtain the Closing Disclosure or similar legal document showing
      the cost of the land and the date of purchase. The Mortgagee must obtain evidence
      that the funds used to pay Borrower-paid options were derived from an acceptable
      source. The Mortgagee must obtain an itemization of the options and expenses,
      and cost of each item. If the land was given as a Gift to the Borrower, the
      Mortgagee must verify that the donor was not a prohibited source. The Mortgagee
      must comply with New Construction requirements. vii. Mortgage Interest Rate
      During the construction period, the interest rate may be variable. The Mortgagee
      and the Borrower must enter into an agreement that: • documents the range in
      which the interest rate may float during construction; • documents the point
      of interest rate lock-in; • specifies that the permanent Mortgage will not exceed
      a specific maximum interest rate; and • permits the Borrower to lock in at a
      lower rate, if available and they have not already locked in a rate. II. ORIGINATION
      THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward
      Mortgages 8. Programs and Products - Construction to Permanent (09/20/2021)
      Handbook 4000.1 480 Last Revised: 11/26/2025 The Mortgagee must qualify the
      Borrower for the Mortgage at the maximum rate at which the permanent Mortgage
      may be set. viii. Required Documentation for Closing In addition to standard
      FHA documents, the following documents must be used: (A) A Construction Rider
      to the Note, and Construction Loan Agreement. These construction documents may
      be in any form acceptable to the Mortgagee, but they must provide that all special
      construction terms end when the construction loan converts to a permanent Mortgage.
      After conversion, only the permanent mortgage terms (based on standard documents)
      continue to be effective, making the permanent Mortgage eligible for FHA mortgage
      insurance. (B) A disclosure issued to the Borrower explaining that the Mortgage
      is not eligible for FHA mortgage insurance until after a final inspection, or
      the issuance of a Certificate of Occupancy (CO) by the local governmental jurisdiction,
      whichever is later. (C) Either a fully executed contract agreement between the
      builder and the Borrower, which includes the contractor’s price to build; or
      documentation of the actual costs of construction where the Borrower is acting
      as the general contractor. (D) Documentation of land acquisition or land ownership.
      (E) A payoff statement and evidence of the actual payoff if mortgage proceeds
      are used to purchase or pay off debt on the land. ix. Escrow Account At closing,
      after funds are disbursed to cover the purchase of the land, the balance of
      the mortgage proceeds must be placed in an escrow account to be disbursed as
      construction progresses. The Mortgagee must obtain the Borrower’s written authorization
      for each draw prior to disbursing funds to the contractor. After completion
      of construction, the construction escrow account must be fully extinguished,
      and any remaining funds must be applied to the outstanding principal balance
      of the permanent Mortgage. x. Required Documentation for Endorsement The Mortgagee
      must comply with Required Documentation for New Construction Financing. The
      following documentation is required for Mortgage endorsement: II. ORIGINATION
      THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward
      Mortgages 8. Programs and Products - Construction to Permanent (09/20/2021)
      Handbook 4000.1 481 Last Revised: 11/26/2025 • The Mortgagee must obtain a title
      update after conversion to the permanent Mortgage to show that the mortgaged
      Property is free and clear of all liens other than the Mortgage. • The Mortgagee
      must verify and document that the construction was fully drawn down and that
      any remaining funds were used to pay down the principal balance on the permanent
      Mortgage. xi. Endorsement The Mortgage must be endorsed within 60 Days of the
      final inspection or issuance of the Certificate of Occupancy (CO), whichever
      is later. xii. Start of Amortization Amortization of the permanent Mortgage
      must begin no later than the first of the month following 60 Days from the date
      of the final inspection or issuance of the CO. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      A. Title II Insured Housing Programs Forward Mortgages'
  judgment: false
