source:
  type: guide
  id: fnma-sel-b5-3.1-02
  authority: 'Fannie Mae Selling Guide B5-3.1-02 — Conversion of Construction-to-Permanent
    Financing: Single-Closing Transactions'
  description: 'Fannie Mae Selling Guide B5-3.1-02 — Conversion of Construction-to-Permanent
    Financing: Single-Closing Transactions.'
  coverage_tier: operative
obligations:
- id: fnma-sel-b5-3.1-02-full
  canonical_id: fnma-sel-b5-3.1-02-full
  section: 'Fannie Mae Selling Guide B5-3.1-02 — Conversion of Construction-to-Permanent
    Financing: Single-Closing Transactions'
  type: do
  tags:
  - regulator-direct
  - fnma
  - selling-guide
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: 'Fannie Mae Selling Guide B5-3.1-02 — Conversion of Construction-to-Permanent
      Financing: Single-Closing Transactions'
    source_class: fnma-guide
    source_url: https://singlefamily.fanniemae.com/media/document/pdf/selling-guide
    snapshot_id: 5f7b8b79da595d76
    fetched_at: '2026-05-25T14:09:57Z'
    content_hash: sha256:98cf85a02861bbe84914a0e339b327c8fc131869a8a573882007bbeea60c5701
    paragraph_quote: 'B5-3.1-02, Conversion of Construction-to-Permanent Financing:
      Single-Closing Transactions (05/06/2026) Introduction This topic contains information
      on construction-to-permanent ﬁnancing loan eligibility for single-closing transactions,
      including: 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 Age
      of Credit Documents Age of Appraisal Documents Requaliﬁcation Requirements 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.
      Published May 6, 2026 720 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 B5-2-05, Manufactured Housing Legal Considerations. 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 B5-3.1-03, Conversion of Construction-to-Permanent
      Financing: Two-Closing Transactions). 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 Published May 6, 2026 721 used to purchase
      a completed property; however, all other requirements for limited cash-out reﬁnances
      apply. See B2-1.3-02, Limited Cash-Out Reﬁnance Transactions and the limited
      cash-out reﬁnance requirements in B5-2-03, Manufactured Housing Underwriting
      Requirements. 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 Eligibility
      Matrix, 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. Transaction Type Lot Ownership Requirement LTV Ratio Calculation
      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 purchase price (sum
      of the cost of construction and the sales price of the lot), or • the “as completed”
      appraised value of the property (the lot and improvements). The loan amount
      of a manufactured home can include all allowable costs as listed in B5-2-03,
      Manufactured Housing Underwriting Requirements 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 Published
      May 6, 2026 722 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 B3-4.3-04, Personal Gifts; B3-4.3-06, Grants and Lender Contributions; and
      B3-4.3-08, Employer Assistance, 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) unless the results of either the loan amount or
      the interest rate is within the DU resubmission tolerances in B3-2-10, Accuracy
      of DU Data, DU Tolerances, and Errors in the Credit Report. 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. Published May 6, 2026 723 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, subject to
      the DU resubmission tolerances. As described in the following table, re-underwriting
      tolerances may be applied if the interest rate or loan amount was modiﬁed. (All
      other modiﬁcations require re-underwriting.) Modiﬁed Loan Term Re-underwriting
      Tolerances Interest Rate • For loans underwritten through DU: see the tolerances
      and resubmission requirements in B3-2-10, Accuracy of DU Data, DU Tolerances,
      and Errors in the Credit Report. • For manually underwritten loans: if the recalculated
      DTI (based on the change in rate or loan amount) does not exceed 45%, the loan
      must be re- underwritten with the updated information to determine if the loan
      is still eligible for delivery. Note: If the increase in the DTI ratio moves
      the DTI ratio above the 36% threshold, the loan must meet the credit score and
      reserve requirements in the Eligibility Matrix that apply to DTI ratios greater
      than 36% up to 45%. Loan Amount 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 the interest
      rate or loan amount was modiﬁed subsequent to the last DU submission in excess
      of the DU resubmission tolerances, or another 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: Published May 6, 2026 724 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 B1-1-03, Allowable Age of Credit Documents and
      Federal Income Tax Returns 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 ( Form 1004D ) 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 B4-1.2-04, Appraisal Age and Use Requirements 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 Eligibility Matrix 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: Published May 6, 2026 725
      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 UAD 3.6 Policy Supplement. Recent Related Announcements The table below
      provides references to recently issued Announcements that are related to this
      topic. Announcements Issue Date Announcement SEL-2026-05 May 06, 2026 Announcement
      SEL-2025-09 November 05, 2025 Announcement SEL-2025-04 June 04, 2025 Announcement
      SEL-2022-02 March 02, 2022 Announcement SEL-2021-08 September 01, 2021 Announcement
      SEL-2019-07 August 07, 2019 Published May 6, 2026 726'
  judgment: false
