Oftentimes, one of the biggest barriers that mortgage
originators face in closing loans is the nationwide
housing shortage. This past fall, there was just a four-month supply of homes on the market — which is the
number of months it would take for the current inventory to sell if no new homes were added, according to
the National Association of Realtors. A six-month supply is considered a healthy market.
The limitations created by this supply problem can
be overcome, however. There exists a financing solution that allows homebuyers to get into the homes
they’re longing for, while also allowing mortgage originators to seal more deals.
The single-close construction loan, also known as
a construction-to-permanent financing, provides an
avenue for borrowers to finance the construction of
their dream home. Originators can close more loans
by learning about and employing this useful financing tool.
Peace of mind
The single-close construction loan allows borrowers
to easily combine financing for a lot, construction and
mortgage into one loan. This methodology is best for
the buyer who is looking into new construction. This financing path can provide low interest rates, low money down and just a single closing.
One advantage of a single-close construction loan is
the interest rate is locked prior to the start of construction. That adds a welcome degree of certainty for the
A single-close construction loan can be offered with the
same low-downpayment requirement that applies when
buyers attempt to purchase an existing home. Builders,
who typically require a 20 percent downpayment to begin construction, can afford to be more flexible because
they benefit from an expanded pool of purchasers.
The single-close financing also can give builders
peace of mind knowing that their purchaser is already
approved for a permanent loan from a national lender.
That allows them to build with confidence without deploying their capital to guarantee a bank construction
loan for speculative development.
For homebuyers, the single-close financing route offers peace of mind because they can move forward without any interruptions or issues that may arise with other
financing arrangements after construction begins. An
added benefit is that the homebuyer only pays for one
set of closing costs, which saves money in the long run.
Single-close construction loans also have permanent mortgages that close before construction begins.
In addition, the fixed rates on the loan should not be
subject to change during the construction phase, so
there are no surprises.
How it works
Single-close-construction loans have come a long way
in recent years. In addition to the expanded product
guidelines, the software to manage the relationship
and communication between loan officers, builders
and borrowers has improved, making the process
Keeping internal control of the process from start
to finish allows mortgage companies to provide high
levels of customer satisfaction. That, in turn, creates referral business for mortgage originators from satisfied
The process of purchasing a home with a single-close
construction loan is similar to a more traditional
home-mortgage approach. It begins with a borrower’s
pre-approval to ensure they meet the necessary
requirements for the loan regarding credit guidelines
and income levels.
Then, the borrower will need to work with a general
contractor or builder for the property, and the lender
must approve that builder. Site selection then follows
The project also will then need to be approved, and
the builder will usually send costs to the lender. That
lender will then review construction plans, the costs
and structure the loan based on those parameters.
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Advantages of a single-close
Bruce Olster is senior managing director
of GSF Mortgage Corp.’s Construction Loan
Division. He has 22 years of experience in
residential-construction lending. Olster
formerly was chief financial officer of GSF
and prior to that co-founder and CEO of
NattyMac. He is a 40-year industry veteran.
Reach Olster at email@example.com.
Chad Jampedro is president and co-owner
of GSF Mortgage Corp. The company has
been successfully lending for more than
23 years, with the average tenure of a
GSF Mortgage Corp. employee being
more than 10 years. Reach Jampedro at
n;Offers the chance to build a custom home.
n;Locks in interest prior to construction.
n;Downpayment options as low as 5 percent.
n;Expands purchaser pool for builders.
n;Prevents interruptions during construction.