construction loan agreement document age at conversion ...€¦ · 10 subordinate financing 25...

This information is published and/or provided by Plaza Home Mortgage, Inc. as a courtesy to its clients and is meant for instructional purposes only. None of the information provided is intended to be legal advice in any context. Plaza makes every effort to provide accurate information. Plaza does not guarantee, warrant, ensure or promise that it is correct, and any effort to blame Plaza if this information proves to be incorrect will be vigorously defended. Each client is highly encouraged to seek the advice of legal counsel prior to distributing any of the information provided herein. Any unauthorized use, dissemination or distribution of this document is strictly prohibited.

Plaza Home Mortgage, Inc. is an Equal Housing Lender. This is not a commitment to lend. Information is intended for mortgage professionals only and is not intended for public use or distribution. Terms and conditions of programs are subject to change at anguidelines for loan specific details and all eligibility requirements. © 2019 Plaza Home Mortgage, Inc. Plaza Home Mortgage and the Plaza Home Mortgage logo are trademarks of Plaza Home Mortgage, Inc. All other trademarks are the property of their respective owners. All rights reserved. Plaza NMLS #2113. P.W.One Time Close Construction-to-Permanent Program Guidelines.G.100.4.1.19

of 18 plazahomemortgage.com

Initial Publication 4/1/2019

(Click the link to go straight to the section) 1 Program Summary 16 Down Payment/Gifts 31 Insurance 2 Interest Rate Options 17 Reserves 32 Inspections 3 Product Codes 18 Interested Party Contributions 33 Closing Documents 4 Program Matrix 19 Property Eligibility 34 Draw Process 5 Occupancy 20 Eligible Improvements 35 Change Orders & Contingency 6 Transactions 21 Cost of Improvements 36 Consultant Requirements 7 Property Flips 22 Contingency Reserve 37 Contractor Requirements 8 Identity of Interest 23 Calculate Loan Amount & MMW 38 Self-Help Requirements 9 Loan Limits 24 Appraisal 39 Construction Loan Agreement 10 Subordinate Financing 25 Geographic Restrictions 40 Construction Loan Period 11 Borrower Eligibility 26 Max Financed Properties 41 Document Age at Conversion 12 Underwriting Method 27 Mortgage Insurance 42 Conversion to Permanent 13 Credit 28 Repair Escrows 43 Conversion to Permanent-Mod 14 Income and Employment 29 ARM Adjustments 44 Forms and Documentation 15 Qualifying Ratios 30 Temporary Buydowns 45 Impound Account

Section 1 Program Summary

One time close transactions (single close) are used for both the construction financing and the permanent financing. This enables borrowers to close both the construction loan and the permanent loan at the same time. It offers both builders and borrowers a sense of security because the project budget is determined before closing and the permanent financing is in place before work begins removing the uncertainty for changes in interest rates.

Prior to the closing, the borrower will need to choose a construction period of 6, 9, or 12 months based on the submitted project and the ability to complete the project based on local market conditions (permits, weather, labor and materials availability). It is critical to choose a realistic timeframe. Not meeting this time frame will require modification and requalification of the permanent loan.

The construction loan is structured as a temporary loan exempt from the ability to repay requirements under Regulation Z. Because the loan documents specify the terms of the permanent financing, the construction loan will automatically convert to a permanent long-term mortgage upon completion of the construction. Any changes to the terms of either the construction loan or the permanent loan before conversion will require a modification and may require the borrower to requalify for the permanent mortgage.

Plaza will be responsible for managing the disbursement of the loan proceeds (draws) to the builder, contractor, or other authorized suppliers as instructed by the borrower at closing. Draws will be based upon stages of construction (percentage completed or line items). Once the property is 100% complete, the loan will convert to permanent financing.

These Underwriting Guidelines. Refer to Fannie Mae Selling Guide for any information not specified in Guidelines.




Section 2 Interest Rate Options

OTC loans are eligible to be locked with Borrower Paid compensation only. Lender paid compensation is not allowed.

Interest rate during the construction period:

During the construction period, the construction interest will be a fixed rate. This construction rate will be set at the time of closing on the construction phase of the loan. The daily construction rate will be available on the daily rate sheets. Borrowers will have the option of a 6-month, 9-month or a 12-month construction term. Payments during construction will be interest only monthly based on total draws to date.

Permanent Rate at Completion:

Upon completion of construction, the loan will convert to permanent financing at the rate determined at closing (or modified if the borrower chooses to exercise the float down option). Payments on the permanent loan will be amortized over a 30 year term upon conversion. Long term Lock with Float-Down Option: The permanent rate is set at closing with an option to float down the permanent rate to the current market rate at time of conversion to permanent financing. Eligibility to float down is based upon the following requirements:

Construction must be complete and finalized within 30 days of the float down request Float down rate will be based on current 60 day price as offered by Plaza on the day of the float down

lock. A loan modification will be required to reflect the new permanent interest rate.

Section 3 Product Codes

Loan Term & Product Code Loan Term Product Name Product Code

30 YR One Time Close Construction-to-Permanent Conforming 30 Year Fixed Permanent Term w/6-Mo Construction Term

CF30C6


CF30C9


CF30C12

30 YR One Time Close Construction-to-Permanent High Balance 30 Year Fixed Permanent Term w/6-Mo Construction Term

CF30HBC6


CF30HBC9


CF30HBC12




Section 4 Program Matrix

Primary Residence and Second HomesPurchase and Rate/Term Refinance

Property Type LTV CLTV Min Credit Score Max DTI

1 Unit Detached 70% 70% 700 Per DU & MI

Section 5 Occupancy

Owner-occupied primary residences Second Homes

Section 6 Transactions

Purchase Rate/Term Refinance (limited cash out)

Purchase:

The borrower is not the owner of record of the lot prior to the loan application. The borrower is using proceeds from the financing to purchase the lot and finance the construction of the property.

Rate/Term (Limited Cash Out) Refinance:

The borrower is the owner of record of the lot prior to the loan application. The borrower is using the proceeds from the loan to pay off any existing liens

1 on the lot and to finance the

construction of the improvements. The property is free and clear and the borrower wants to finance the construction of the improvements. All other requirements for rate/term refinances apply

2.

If the borrower is purchasing the lot under a contract for deed or land sale contract, if the contract is less than 12 months, treat as a purchase. Otherwise, treat as a Refinance. See Fannie Mae Selling guide.

1.Existing subordinate liens must be purchase money seconds or documented they were used for development of the site or specific to the construction of the subject improvements.

2.Refer to the Loan Purpose sections in Fannie Mae Selling Guide for additional details.

Section 7 Property Flips

Properties that have been acquired within the last 12 months are eligible.1

1.




Section 8 Identity of Interest

Identity of Interest and Non-Arms Length describe certain transactions that may pose increased risk and warrant additional precautions when evaluating that risk. An example would be a transaction where the borrower has a relationship or business affiliation (any ownership interest, or employment) with any builder, contractor, or seller of the property. Sales transactions between family members are permitted; no other instances of Identity of Interest or conflict of interest between parties are allowed.

If the borrower has a relationship or business affiliation with the builder, developer, or seller of the property, primary residence transactions may be eligible by exception. Second home and investment property transactions are not eligible.

Section 9 Loan Limits

Maximum Base Loan Amount Program Units Contiguous U.S. Alaska & Hawaii

Conforming 1 Unit $484,350 $726,525 High Balance 1 Unit $726,525 N/A

1

1.There are no properties in Alaska and Hawaii with loan limits higher than the applicable base conforming loan limits for 2019. As a result, there are no high balance limits specific for these states.

If the original loan is modified, both the original construction loan amount at closing and the final modified loan amount must meet the loan limits currently in effect.

Refer to for specific counties and states eligible for higher loan limits.

The OTC Construction-to-Permanent Acquisition Cost Worksheet Form No CL-FM-012 must be used to determine the maximum allowable mortgage amount. Refer to Section 23 Calculating the Loan Amount and Maximum Mortgage Worksheet.

Section 10 Subordinate Financing

Subordinate financing is allowed per the LTV/CLTV & credit score tables.

Refer to the Subordinate/Secondary Financing sections in Fannie Mae Selling Guide for additional details.

Section 11 Borrower Eligibility

Eligible Borrowers:

U.S. citizens Permanent resident aliens Non-permanent resident aliens Non-occupant co-borrowers Inter Vivos Revocable Trusts Refer to First-Time Homebuyers

A first-time homebuyer is as indicated on the URLA (Form 1003) in Section VIII., when a borrower




Ineligible Borrowers:

Partnerships Corporations Non-Revocable Inter Vivos Trusts Foreign Nationals Borrowers with Diplomatic Immunity

Social Security Number Data Integrity Issues:

number must be validated directly with the Social Security Administration. Loans with validated Social Security numbers must be delivered with Special Feature Code 162. If the Social Security number cannot be validated with the SSA, the loan is not eligible. Refer to the Credit Guidelines for additional details.

Refer to the Borrower Eligibility sections in Fannie Mae Selling Guide for additional details.

Section 12 Underwriting Method

Automated Underwriting:

Loans must be underwritten by Desktop Underwriter (DU) and receive an Approve/Eligible recommendation. For guidance on data entry for construction-to-permanent transactions in DU, see the related Desktop Underwriter Job Aid. Underwriters must document BREEZE with Special Feature Code (SFC) 151.

Loan Terms:

The underwriter must underwrite the loan based on the terms of the permanent financing. If the permanent financing terms are modified after closing, the loan may require requalification subject to the re-underwriting tolerances listed below.

Underwriting Loan Modifications: The only terms that may be modified are:

Interest Rate Loan Amount Permanent Loan Start/End Date

If the loan is modified at time of conversion to permanent financing, the loan must be re-underwritten based on the terms of the loan as modified. With the exception of the interest rate and loan amount re-underwriting tolerances described below, if the final (modified) terms of the loan do not match the last submission to DU, the loan must be re-submitted to DU.




Loan Term Modified

Re-Underwriting Tolerances

Interest Rate The loan casefile must be resubmitted to DU If the interest rate change causes the DTI at the new interest rate to

exceed 45% or increase by 3 percentage points or more

Loan Amount Purchase: Any loan amount change on a purchase transaction must be resubmitted to DU. Refinance: Resubmission is not required in the following instances. If the following requirements/limitations are not met the loan must be resubmitted to DU.

The loan amount may increase $500 or up to 1% of the loan amount, whichever is less.

The loan amount may decrease 5% of the loan amount. The new LTV/CLTV must not result in changes to the amount of required

mortgage insurance coverage. The new LTV/CLTV must not result in different loan-level price adjustments. The new LTV/CLTV must not result in changes to loan eligibility.

Example: If a loan casefile is submitted with a loan amount of $138,500 and the appraised value is $200,000 (which equals 69.25% LTV), a loan amount increase to $139,000 (which equals 69.5% LTV) would not require resubmission. On the other hand, if the original loan amount was $120,000 (60% LTV) an increase without resubmission is not permitted because it would result in an LTV of 61%. The higher LTV requires different loan-level price adjustments and therefore requires resubmission to DU.

Manual Underwriting: Manual Underwriting is not permitted.

Section 13 Credit

Credit Score: The minimum credit score is determined by DU but may not be lower than 700.

Valid Credit Score:

Regardless of DU approval, for a credit score to be considered valid, the score must be generated based on sufficient credit depth.

At least one borrower must have a valid credit score. High Balance mortgage loans require a valid credit score for each borrower. Additional documentation requirements may apply when one or more borrowers do not have a valid credit

Credit Guidelines for additional requirements.

Housing History:

The mortgage payment history may be deemed satisfactory when the mortgage credit rating is disclosed on the credit

For rental payment history or for mortgage ratings not evaluated by the AUS, there may be no history of any 30-day late mortgage or rental payments within the last 12 months. Any late payments in the last 24 months will be considered by the underwriter.




Credit Guidelines for additional details.

Section 14 Income & Employment

Income must be documented per the DU Findings Report and Plaza Guidelines. Regardless of DU findings, the following is required on all loans:

1003: A completed and signed 1003 including a 2-year employment history is required for all borrowers. 4506-T/Tax Transcripts: A signed 4506-T for all years in which income was used in the underwriting decision are required regardless of DU findings. Tax Transcript Guidelines to determine if transcripts are required. Income/Employment:

Validated by DU: When income and employment have been validated by DU, the DU findings along with Employment and Income Verification report is acceptable documentation.

Not Validated by DU (either DU Validation Services not utilized or DU unable to validate income): If income and employment have not been vSelling Guide is required; however, for non-self employed borrowers a year-to-date paystub, at minimum, is required and cannot be replaced with a handwritten VOE.

Verbal Verification of Employment: Employment Validated by DU: DU employment validation obtained within 10 days of closing is

acceptable to satisfy the VVOE requirement. In all other situations and for all other employment verification methods, standard VVOE requirements

apply.

When relying for additional information.

Employment and Income Commencing After the Note Date:

Option 2. If the borrower has not started work B3-3.1-09

Employment Offers or Contracts.

The underwriter must identify Special Feature Code (SFC) 707.


Section 15 Qualifying Ratios

The maximum debt-to-income (DTI) ratio will be determined by the DU, and if applicable, the MI company.

Section 16 Down Payment / Gifts

Follow standard Fannie Mae requirements for down payment and gift funds.




Section 17 Reserves

Primary Residence:

Subject Property: Per DU Other Financed Properties: Per DU

Section 18 Interested Party Contributions

Interested party contributions are limited to 9%

Section 19 Property Eligibility

Eligible Properties:

Detached SFRs (including Modular, Prefabricated & Panelized) Detached PUDs Detached Condos

Ineligible Properties:

Attached properties 2-4 unit properties Commercial properties Condotels Properties listed on a Historical Register Cooperatives Geodesic dome homes Geothermal homes Mobile homes Manufactured Homes Timeshares Working farms, ranches, orchards

Refer to the Credit Guidelines for additional details.

Section 20 Eligible Improvements

All Hard costs associated with constructing a single family residence.

Site Development costs/Site Improvements (grading, septic, well, etc.) Building materials Labor to build the house




Section 21 Cost of Improvements and Fees

All Soft costs for construction - all costs essential to the construction of a home, including but not limited to the following:

e.g. Environmental/Transportation/Water/Sewer Services Architectural/engineering fees Plans and specs/drawings Builder Acceptance Review Project Review/construction Underwriting Draw Administration fees Interim draw or Progress Inspection fees Title Endorsement/title update fees Appraiser final inspection fees Permits and permit inspection fees Environmental/geological reports Builder profit/overhead and supervision costs Perc tests for septic/well tests/feasibility studies Boundary surveys/site surveys/improvement or foundation surveys Closing costs (including originator compensation, lock fees, title and settlement fees, etc.)

Survey - Site, Improvement or foundation survey: New Construction requires a survey to determine the structure is built within lot lines, set backs, easements, etc. The survey is required for the permit inspections and for the title insurance. The Builder is the best local source to obtain the survey and should include this as part of site or foundation

). If the builder is unwilling to include the survey costs, then the borrower may obtain a written quote from local surveyor and include it in their soft costs. A copy of the survey will be required before draws are paid for the foundation and for the final update to the title insurance.

Section 22 Contingency Reserve

10% of the Hard costs

Section 23 Calculate Loan Amount and Maximum Mortgage Worksheet

Purchase:

Acquisition Cost Worksheet

Lot sales price $ If borrower is purchasing the lot at time of closing.

Construction Contract Price $ Fixed price contract or Guaranteed maximum price only. (Cost plus contracts are not allowed)

Contingency Reserves $ 10% of hard costs

Loan Closing Costs $ Section 21 Soft costs and closing costs

Total Acquisition Cost $ Calculate desired LTV from lower of Acquisition cost

LTV Calculation: Divide the loan amount by the lesser of: The acquisition cost (sum of the cost of construction and the sales price of the lot), or

The One-Time-Close Construction-to-Permanent Acquisition Cost Worksheet must be used to calculate the maximum mortgage amount.




Rate/Term Refinance:

Refinance Cost Worksheet

Lot payoff (purchase money 1st and

2nd

mortgages1

$

If borrower is vested owner of lot at time of closing. (If purchasing on a contract for deed/land contract with less than 12 months seasoning, treat as a purchase per FNMA standard land contract guidelines)

Construction Contract Price $ Fixed price or Guaranteed max. price only. (Cost plus contracts are not allowed)

Contingency Reserves $ 10% of hard costs

Loan Closing Costs from LE $ Same as a LCOR

Total Acquisition Cost $ appraised value. 1.

improvements). The One-Time-Close Construction-to-Permanent Acquisition Cost Worksheet Form CL-FM-012 must be used to calculate the maximum mortgage amount.

Borrower Provided Materials:

Materials provided by the borrower may be allowed but cannot be financed in the loan amount.

All materials provided by the borrower must be new from the manufacturer and be documented with paid invoices, and

Source of funds to acquire the materials must be documented

Section 24 Appraisal

One full appraisal is required. A Property Inspection Waiver (PIW) is not allowed.

tes the value of the property after completion of construction.

Plans and specifications must be completed prior to ordering an appraisal. Completed plans and

value of the property. The Appraiser should complete the Cost Approach to Value and include a lot comparable sale with the MLS #, referenced on the Cost Approach section (Not . This should support the

Following completion of construction (at time of conversion to permanent), the borrower must obtain a certification of completion stating that the construction was completed in accordance with the submitted plans and specifications. The certification must be documented on the Appraisal Update and/or Completion Report (Form 1004D).

The appraisal must be s and should be stated.





Section 25 Geographic Restrictions

Geographic State Restrictions for general guidelines and restrictions.

Hawaii: Properties in Lava Flow Zones 1 or 2 are not allowed.

Section 26 Max Financed Properties / Exposure

The maximum number of financed properties, including the subject property and including residence, regardless of the lending source is limited as outlined below.

Primary Residence: No restrictions Second Home:

1 - 6 financed properties: no additional restrictions. See Reserves requirements. 7 - 10 financed properties: DU Approve/Eligible required, minimum 720 Credit Score required. See

Reserves requirements. > 10 financed properties is not allowed

Maximum Loans/Maximum Exposure:

A maximum of four Plaza loans is permitted to one borrower. A builder may not have more than four active construction projects with Plaza at one time.

Section 27 Mortgage Insurance

Not applicable. Mortgage Insurance is not required for loans with LTV < 80%. MI from a Plaza approved MI provider.

Section 28 Repair Escrows

Weather related escrow holdbacks are not allowed.

Section 29 ARM Adjustments

Not applicable.

Section 30 Temporary Buydowns

Not allowed.




Section 31 Hazard Insurance & Title Insurance

Hazard insurance: Must cover the as-completed value of the home.

During the construction period, the borrower may not be able to obtain a policy on bare land; however, if an HOI is available, it must include an endorsement coverage.

list Plaza Home Mortgage as loss payee.

Builder's risk insurance is "coverage that protects a person's or organizations insurable interest in materials, fixtures and/or equipment being used in the construction or renovation of a building or structure should those items sustain physical loss or damage from a covered cause."

The Borrower will be required to provide a Homeowners Policy at conversion to the permanent financing.

Title Insurance:

Title insurance endorsements vary from state to state. Custom Home builders often have a preferred settlement agent and title company they work with on a regular basis. It might be beneficial to consider their preferred agent.

The policy must be 2006 American Land Title Association (ALTA) standard form and dated concurrently with the date of the mortgage. ALTA short form is allowed as long as it provides coverage equivalent to the standard form and does not materially impair protection to the lender.

The policy must include a

Endorsements:

An environmental protection lien endorsement (ALTA Endorsement 8.1-06 or equivalent) is required A state specific endorsement for mechanics lien date-down or construction endorsement A survey or foundation endorsement

At completion, Plaza must be able to obtain a final endorsement that extends the effective date of coverage to the later of the final construction advance date or the endorsement date.

Loan Closing Manual.

Section 32 Inspections

Inspections are ordered by Plaza when a draw request is submitted. Draw requests are submitted on OTC Draw Request Form. Inspections are performed by a Plaza contracted Inspection Service. For each inspection, the inspector will prepare a summary report. Plaza will use the information in the summary report to ensure that the work is being complete as specified.




Section 33 Closing Documents

Fannie Mae's uniform mortgage instruments are used to document the permanent mortgage. These documents may not be altered to include any reference to construction of the property, other than any alteration that Fannie Mae specifically requires.

Because the loan documents specify the terms of the permanent financing, the construction loan will automatically convert to a permanent long-term mortgage upon completion of the construction.

Refer to the Forms and Documents section of the Program Guidelines for specific forms.

See Section 31 for Hazard and Title insurance requirements.

Section 34 Draw Process

Draw Process:

First Advance (at closing): At the time of closing, certain costs can be advanced based on the loan being either a purchase or a refinance.

The following costs are allowed:

Payoff of existing liens associated with the purchase of the property (refinance only) Construction costs including but not limited to:

Engineering or Architectural fees Plans and specs Permits Septic Perc tests/Well tests Surveys (site/improvement/foundation) if completed Certain advances/deposits/materials draws a Contingency fund Closing Costs

Interim advances (after closing):

The builder or borrower will submit a draw request form to Plaza. Draw requests must be submitted using exhibit C to the Construction Loan Agreement. Plaza will order an inspection to verify that the work has been completed according to specifications once a completed draw request has been received. The builder, all subcontractors and suppliers must submit lien waivers to Plaza in order to receive proceeds from an advance (draw). ien waivers are required for each draw. Note: replaces Fannie

3739. Upon receipt of the above items, Plaza will issue a two-party check made out to the borrower and builder, or by direct ACH Deposit when authorized by the borrower. Plaza limits the number draws to 12, including interim and final draws. Plaza will withhold 10% of each interim draw disbursement until the entire project is complete.




Section 35 Change Orders and Contingency

Plaza must approve any change orders.

To request a change, submit the Line Item Transfer/Change Order Form Draw Administration Loan Servicing Department. The borrower must pay for any changes not included in the original project and covered by the financing. If changes are made within the scope of the original project, a change order will be required and the fee must be paid in advance. Plaza will charge a $250 change order fee for all change orders. Send request to: Customer Service renoservicing @Plazahomemortgage.com Phone: 1-888-807-2620 Fax: 1-858-332-1861 Email: [email protected]

Section 36 Contractor Requirements

Builder/Contractor:

All work must be performed by a licensed contractor experienced in new construction. (generally 3 yrs. experience) The contractor is chosen by the borrower, however Plaza must be able to determine that the contractor is qualified and experienced for the work being performed, including the requirement that the contractor must be financially able to perform the duties to complete the work in a timely manner. Plaza will maintain a database of accepted contractors. If the contractor is accepted, then for each transaction, the contractor must still:

Agree to indemnify the borrower for all property losses or damages caused by its employees or subcontractors specific to the transaction.

The database will be updated as needed or whenever the license(s) or insurance(s) on file are expiring, but no less than annually. Annual renewals will not include the full list of items required at initial acceptance. Plaza will request only pertinent information required for the update.

Section 37 Builder/Contractor Acceptance:

The contractor can be accepted in conjunction with a loan or independently if they choose to refer their future purchasers to a Plaza approved Broker/Client and use Plaza for the OTC construction to Permanent program. First time Builder applications with require a processing fee of $150.00 paid to Plaza Home Mortgage. Plaza requires a completed Home Builder Application along with all of the items required on the Builder Checklist. Plaza will use the information provided and submitted to the Plaza Construction Division to make the determination that the contractor is qualified. Contractor acceptance will be performed by Construction Division and add accepted contractors to our database.




Builder requirements for acceptance: *Items Always Required. Other items may not be applicable and you may mark with N/A.

* Completed, fully executed Home Builder Application

*

* Resume (or Executive summary overview of experience & history, include for all principals if applicable)

* Five project references completed on Builder Application

Corporate resolution (if applicable)

* YTD Profit and Loss (Income) statement (unaudited)

* Current Company Balance Sheet or Personal Financial statement (unaudited)

* Most recent Two years Federal tax returns (personal or company, as applicable)

* Certificate of Insurance for General liability. (Minimum of $1,000,000 per occurrence required)

* insurance, provide a signed statement on your company letterhead explaining why)

Bond if required by local authority

* nce or Corporation, (credit report may be pulled on all owners).

* Fully executed W-9

Construction Contract:

Borrowers must have a construction contract with their contractor. Fannie Mae Construction Contract Form 3734 or substantially similar form must be used. The contract must:

Be a fixed-price contract or guaranteed maximum price contract (cost-plus is not allowed) stating the agreed-upon cost of the work; and be executed by both the contractor and the borrower. The contract will also require the contractor to:

be duly licensed (if required by applicable law); obtain all required insurance coverages (such as -risk, general li

compensation); complete the work in compliance with the contract and all applicable government regulations (such as

building codes and zoning restrictions); obtain the necessary building permits (including a certificate of occupancy, if required); provide for appropriate remedies for resolving disputes (including an agreement to indemnify the borrower

ployees or subcontractors).




Plans and Specifications / Contractor Bid (Exhibit A to Construction Contract):

are required to be prepared by a registered, licensed, or certified general contractor, or architect;should fully describe all work to be done including labor and materials costs; should include floor plans and specs, building elevations, etc. include an itemized listing of all permits and their corresponding costs; include an itemized description (draw schedule) that establishes the schedule for completing each stage of work and corresponding payments to be made to the contractor (including both the start and job completion dates); Itemize the specific work that the contractor agrees to perform for the borrower; state the agreed-upon cost of the completed improvements; be executed by both the contractor and the borrower.

Section 38 Self Help (Do-It-Yourself) Section 39 Construction Loan Agreement Self Help is not allowed.

Section 39 Construction Loan Agreement

The borrower and Plaza must sign a Construction Loan Agreement (Fannie Mae form 3735). This form is provided by Plaza with the closing documents.

Section 40 Construction Loan Period

The original construction loan period may be 6, 9 or 12 months to be chosen pre-closing.

The original construction period cannot exceed 12 months. If construction is not completed at the end of the original construction period, a modification and extension may be provided, subject to Plaza review and approval. The total construction period, after any extensions, cannot exceed 18 months.

Exceptions to these timeframes/construction periods will not be granted. If the construction loan period exceeds the requirements above, the loan will not be eligible for a one-time-close and must be converted to a two-closing construction-to-permanent transaction. In a two-closing transaction an entirely new loan is originated to payoff the construction loan.

Section 41 Document Age at Conversion

Credit (income, employment, asset, credit, etc.) and appraisal documents dated not more than 18 months old at the time of the conversion to permanent financing are eligible if all of the following conditions were met at the time of the original closing of the construction loan:

The documents were dated within 120 days of the original closing date of the construction loan. The LTV, CLTV, and HCLTV ratios do not exceed 70%. The borrower has a minimum credit score of 700.

If any of the above conditions are not met or if the loan was modified subsequent to the last DU submission, the lender must obtain updated credit documents and an appraisal update completed on an Appraisal Update and/or Completion Report (Form 1004D), and re-qualify the borrowers at the time of conversion. Refer to Conversion to Permanent With Modification below.




Section 42 Conversion to Permanent Without Modification

All construction work, including any work that

liens relating to the construction must be satisfied.

Completion Documentation Required:

A certificate of completion provided by the appraiser including a photograph of the completed property. A certificate of occupancy or an equivalent form from the applicable government authority.

Because the loan documents specify the terms of the permanent financing, the construction loan will automatically convert to a permanent long-term mortgage upon completion of the construction.

Loan Conversion Documents:

The construction loan is converted into a permanent mortgage uniform instrument that will be used for the permanent mortgage. If any of the loan terms change then a loan modification agreement will be required.

The rider must state the construction loan terms The construction-related provisions of the rider must become null and void at the end of the construction period. If the construction is completed sooner or later than originally anticipated the rider and the accompanying uniform instrument must be amended to provide the new dates on which amortization for the permanent mortgage will begin and end. The amended rider and uniform instrument will need to be recorded at time of conversion.

Section 43 Conversion to Permanent With Modification

All

liens relating to the construction must be satisfied.

Completion Documentation Required:

A certificate of completion provided by the appraiser including a photograph of the completed property. A certificate of occupancy or an equivalent form from the applicable government authority.

Loan Modification:

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. The following requirements apply:

The modification must take place prior to or at the time of conversion. The modification agreement must be recorded at time of conversion. Only the following loan terms may be modified in a single-closing transaction:

interest rate loan amount (reduction) loan first payment/last payment date

Changes made to any other loan terms will require a two-closing construction-to-permanent transaction.

Loan Modification Agreement:

Fannie Mae Form 3179 - Fixed Interest Rate Loan Modification Agreement




Section 44 Forms and Documents

Fannie Mae Forms is required.

1. Note Standard Fannie Mae Note 2. Construction Loan Addendum to Note Fannie Mae Form 3736 3. Security Instrument Standard Fannie Mae Security Instrument 4. Construction Loan Rider to Security Instrument Fannie Mae Form 3737 5. Construction Loan Agreement Fannie Mae Form 3735 6. Construction Contract revised Fannie Mae Form 3734 7. Modification Agreement (if applicable) - Fannie Mae Form 3179

Forms Required Prior to Final Approval

Closing Docs and Disclosures Servicing Forms

OTC Construction-to-Permanent Acquisition Cost Worksheet

3731 - Amendment to Construction Loan Agreement/Indemnification Agreement

OTC Draw Schedule

Home Builder Checklist and

Home Builder Application

3735 - OTC Draw Schedule Exhibit B (Work and Payment Schedule)

form CL-FM-002- Line Item Transfer / Change order form

Plaza Construction Contract (replaces Fannie Mae form 3734)

3735 - OTC Draw Request Exhibit C (Request for Disbursement)

Lien Waiver (to be completed with each draw) Replaces FNMA 3739

W-9 (for Contractor) 3736 - Construction Loan Addendum to Note Completion Certificate

Closing Construction Fee Request 3737 - Construction Loan Rider to Security Instrument

OTC Draw Request

Pre-Paid Accounting Worksheet ACH/Wire Authorization

Permit Advisory Form no. CL-FM-003 Contractor Affidavit, Waiver of Liens, and Indemnity Agreement

Itemized Budget (for hard costs)

Section 45 Impound Account

The borrower is responsible for payment of any taxes, insurance, or HOA fees that become due on or after loan closing (from start of construction).