The One Guideline Line Camila Found Before Breaking Ground Near Richmond Hill
Camila was about to break ground near Richmond Hill, GA when she found out one line in the conventional guidelines decides how her construction loan gets sized, and most builders never mention it. Camila is a fictional, illustrative buyer, but her situation is one that comes up often for people planning to build.
What Camila wanted
Camila wanted simplicity. She did not want one loan to build the house and a second loan, with a second closing, to turn it into a long-term mortgage. She wanted one loan and one closing covering both construction and permanent financing.
What she did not know was how that kind of loan is processed, or how its loan-to-value ratio, the LTV, is measured. Those two details shape how the whole file is structured, and they are rarely explained up front.
The line that sizes the loan
Here is the conventional guideline, word for word:
"Single-closing construction-to-permanent transactions are processed as purchases or limited cash-out refinances. The LTV is based on the lesser of the total acquisition cost or the appraised value."
There are two ideas packed into those two sentences, and both matter.
Idea one: how the file is processed
A single-close construction-to-permanent loan is not its own special category when it comes to processing. The guideline says these transactions are processed as purchases or limited cash-out refinances. Which one applies depends on the facts of the file, so it is worth knowing which label your lender is putting on yours.
Idea two: how the LTV is measured
The LTV is based on the lesser of two figures: the total acquisition cost or the appraised value. In plain words, the lower number is the one that counts. If the appraised value is lower than the total acquisition cost, the appraised value is the measuring stick. If the total acquisition cost is lower, then that is the one.
This is where buyers get tripped up. It is natural to assume the appraisal alone drives the number, or that the cost of the project alone drives it. The guideline says neither one wins automatically. The lesser of the two does.
Why this matters before you break ground
When you know the lower number sets the LTV, you can plan around it from the beginning. You are not caught off guard partway through the process, and you can have a clear conversation with your builder and your lender about the numbers that matter.
The question to ask your lender
Here is the one thing you can do today. Ask the lender:
"Is this loan construction-to-perm single close eligible, and will you calculate the LTV on the lesser of the total acquisition cost or the appraised value, per Selling Guide B5-3.1-02?"
Then ask for written confirmation of whether the file is processed as a purchase or a limited cash-out refinance.
That request does two things. It confirms the loan type you want is actually available for your situation, and it puts the processing method and the LTV measurement in writing so nothing is left to assumption.
Why get it in writing
Verbal answers get fuzzy over the length of a build. A written answer gives you something to refer back to and lets you compare what different lenders are telling you. If a lender cannot or will not confirm it, that tells you something too.
Next step
If you are planning to build and want one loan with one closing, I am glad to talk it through with you. I am licensed in Georgia as well as South Carolina, and my job is to find the path that fits your build. Call me at 843-LOW-RATE or visit homeloansinc.com.
Jason Sharon, Licensed Mortgage Broker, Home Loans Inc. Company NMLS #1728740, Jason Sharon NMLS #1281448. Equal Housing Opportunity.
