Combination Construction to 

Permanent Loans

Presented by: Ed Peace, Finance and Loan Analyst January, 2024

Lender and Partner Activities Branch

Ed.Peace@usda.gov
Combination Construction-to-Permanent

(CTP) Loan
Combination Construction to Permanent Loan

HB-1-3555, Chapter 12, Section 6

Combines:

 The construction loan (short-term interim loan

for financing the cost of construction) and

 The traditional long-term, permanent

residential mortgage

Also know as “single-closeconstruction loan”
3

Combination Construction to Permanent Loan HB-1-3555, Chapter 12, Section 6 

 Lack of affordable housing stock in rural 

America

 USDA’s Loan Note Guarantee issued 

immediately after loan closing (before 

house is built)

 Single-Close Construction loans save 

Applicants money over older “two-time” 

closed loans because there is only 1 loan 

closing (& 1 set of loan closing costs)!
Combination Construction to Permanent Loan -

Summary

Reduced Risk 

Escrow up to 10% of purchase price for cost 

over-runs, and up to 12-months of loan 

payments during construction

Loan Note Guarantee at Closing 

Issued prior to construction and sellable on 

secondary market – attractive to Lenders!

Reduced Risk

To both lenders and builders

Realtor Commission 

Paid at time of closing – prior to 

construction

Two Products Available 

Securitized and Standard

One Closing 

Only one loan closing required, saving 

borrower from excess closing costs
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Loan is Guaranteed Immediately After Closing!

Emphasize:

 USDA’s Loan Note Guarantee 

issued upon Lender’s request 

immediately after loan closing 

(before house is built)
Issuance of Loan Note Guarantee 

Combination Construction to Permanent Loan

 Full amount of the loan is guaranteed

 (Max payout: 90% of original loan amount)

 30 year, fixed rate loan

 After closing, funds are disbursed to cover 

the cost of the land and applicable closing 

costs 
Payments During Construction

Combination Construction to Permanent Loan

Options

1) Interest-Only: payments made during

construction period –or2) “Securitized” version: full PITI payments

made during construction

• Reserves may be established from loan

funds to cover payments due during

construction for either option above

(up to 12 months)
8

Combination Construction to Permanent Loan 

Benefits to Lenders:

 Are protected during construction by 

USDA’s guarantee* 

 Securitized version: 

• PITI payments made from reserves

• No Re-amortization required 

• May be sold immediately on 

 secondary market

 Banks receive CRA credits 

 Expand client base by offering no downpayment loan product
9

Combination Construction to Permanent Loan 

Benefits to Builders:

 Do not have to put up their own capital 

or use their line of credit for the 

construction project

 Expand client base by reaching 

more home-buyers with no downpayment loan program
10

Combination Construction to Permanent Loan 

Benefits to Realtors:

 Get paid BEFORE the house is built

(a rare event for Realtors)

 Expand client base by reaching 

more home-buyers with no downpayment loan program
11

Combination Construction to Permanent Loan

Benefits to Buyers:

 Only 1 set of loan closing costs (save $$)

 Interest or PITI Reserves alleviate need to

make payments on new loan and Rent

during construction period

 Contingency Reserve protects against cost

overrun payments out-of-pocket

 Re-amortization: leftover reserves applied to

reduce Principal balance

 Owners of new construction have less

maintenance concerns
Appraised Value 

Combination Construction to Permanent Loan

The appraiser must be 

given all costs 

associated with the 

construction to be 

included in the final 

market value

Land Value

All costs 

associated 

with 

construction

Reserves Appraised 

Value
Lender Responsibilities 

 Combination Construction to Permanent Loan

 Oversee Disbursement of Loan Proceeds

 Monitor the construction of subject property

 Obtain documentation confirming construction is 

complete

 Ensure use of fixed price construction contract 

(established contingency is ok)
 Once Lenders have USDA-approval, by submitting the

request for Conditional Commitment, they are Selfcertifying staff has two or more years experience

making and administering construction loans

 In lieu of the above, a Lender may employ a

construction loan management company with two or

more years of experience. Lender confirms eligibility

of the company employed.

 Confirm the eligibility of contractors/builders (next slide)

Lender Requirements 

Combination Construction to Permanent Loan
Builder/Contractor Requirements 

Combination Construction to Permanent Loan

 

LENDER verifies (& documents in their files) the Builder has: 

 2 or more years of building/construction experience (SFH)

 State-issued construction or contractor license (as state or 

local law requires)

 Commercial general liability insurance ($500,000 min)

 Contractors building their own residence are ineligible
Eligible Loan Costs 

Combination Construction to Permanent Loan

 

 Land – Acquisition or payoff of balance

 Construction Hard Costs – costs in contract 

 and detailed in budget; costs outside of the 

contract paid to others (example well and 

septic installation, roads/driveways, 

landscaping, etc...) 

Construction Soft Costs – inspection and 

 survey fees, contingency reserves, permits, 

 lender admin fees, etc.
Contingency Reserve 

Combination Construction to Permanent Loan

 A contingency reserve is not required but

may be utilized to cover eligible expenses

associated with unplanned problems with

construction or change orders.

 Limited to 10% of the cost of construction

(including labor, materials and soft costs).

 Funds must be deposited into the

construction reserve account
Loan Closing

Combination Construction to Permanent Loan

 

• Standard industry closing docs are used

• Lender ensures Promissory Note signed & valid 1st

lien obtained at closing

• Term of loan at closing is 30-years

• Interest rate during construction must be fixed rate

• True adjustable rates during construction are not 

allowed

• Annual Guarantee Fee begins to accrue at loan 

closing & will be due each year at anniversary date
Interest-Only Payments During Construction

Combination Construction to Permanent Loan

From established 

reserve account

Directly from borrower 

(lender to document ability to pay) 

-OR-
Securitized -vs- Interest Only

Interest rate, construction contingency, and payment reserves are established at close.

LNG issued at signing and construction begins.

Securitized Version

Principal, interest, taxes, 

insurance (PITI) payments are 

made during construction 

from the reserve.

Construction complete. No 

loan mod needed. Excess 

contingency reserve funds 

applied as principal 

curtailment.

Interest Only Version

Monthly interest is paid from 

interest payment reserve on 

construction loan balance.

Construction completed and 

excess reserves applied to 

principal. Loan modification 

to re-amortize the remaining 

balance. 
Warehouse Line of Credit 

Combination Construction to Permanent Loan

• Warehouse lines may use:

• Dual disclosures (terms of interim;

terms of perm)

• Single disclosure that blends interim &

perm
Interest Only: Re-amortization

Combination Construction to Permanent Loan

• When construction is complete, Re-amortization may be

utilized to achieve full repayment for the remaining term of

loan

• If Loan Mod cause higher PITI payments than those used to

underwrite the loan, USDA does not require a re-underwrite

• Interest rate for permanent loan may be lowered with loan

modification

• Lender to provide executed Modification Agreement

• Amortization must begin no later than the 1st of the month, 60

days from final inspection
Securitized After Loan Closing 

Combination Construction to Permanent Loan

 PITI payments are made during construction.

May lend up to 12-months payments during

construction period. Appraised must

support this.

 Lender manages payments

 No need for loan modification or reamortization

 Borrower resumes payments at end of

construction period

 Excess funds will be applied as principal

curtailment
Construction Draws – Lender Requirements

Combination Construction to Permanent Loan

 

• Draws and disbursements are managed and 

recorded by the lender (or lender’s construction 

management company)

• Borrower and lender are jointly responsible

• Retain documentation to confirm work has been 

completed for the draws disbursed

 

When funds are 

disbursed, the lender is 

warranting to Rural 

Development the work 

was done as specified.
Change Orders and Unplanned Changes

Combination Construction to Permanent Loan

 

UNPLANNED 

CHANGES DURING 

CONSTRUCTION

Should a life change occur 

with the borrower, such as 

loss of job or death occurs, 

the lender remains 

responsible to work with the 

builder to complete the home. 

• Change orders must be approved by 

lender

• Borrower is responsible for any 

costs related to a change order

 that will exceed available loan funds

• Proposed changes should not affect 

the “scope of the project” or the 

appraised value
Construction Close-Out

Combination Construction to Permanent Loan

Once construction is complete, Lender 

obtains/retains in file:

 Appraiser’s final inspection

 Certificate of Occupancy

 Final Title Policy clear of all liens

 Construction phase inspections

 Construction contract

 Cost breakdown

 Construction ledger

 Builder’s Warranty

 Complete Lender Loan Closing System
Builders Warranty 

Combination Construction to Permanent Loan

1 year builder’s warranty 

+

Certificate of Occupancy 

+

3 construction phase inspections 

OR

10 year insured Builders Warranty

+

Final Inspection
Cash Back to Borrower

Combination Construction to Permanent Loan

 

• Lenders must apply any excess loan 

funds as a principal reduction

• Reimbursement of funds for costs 

paid directly by the borrower is 

permitted

• Funds remaining in the contingency 

reserve account may be used for an 

eligible loan purpose –or- applied as 

a principal reduction

Cash Back 

To 

Borrower
Certified Plans and Specifications 

Combination Construction to Permanent Loan

 

Acceptable evidence of Plans and 

Specifications include any one of the 

following:

 Certification from a qualified individual or 

organization (RD Form 1924-25, “Plans 

Certification” is acceptable for this purpose)

 Certificate of Occupancy from local jurisdiction

 Building permit from local jurisdiction

 
30

Thermal Certification 

Combination Construction to Permanent Loan

• Thermal standards must meet or

exceed the International Energy

Conservation Code (IECC) in

effect at the time of construction.

• Typically included in the plans

and specs
Manufactured Homes
Expanding Affordable Homeownership

USDA will guarantee loans on 

Manufactured homes that meet 

the standards on the following 

slides (this is available on brand 

new units in all 50 states). 

The MH Pilot allows for existing 

units (2006 & newer) to be 

guaranteed only in 23 states 

(discussed later). Extended until

Nov 4, 2024. 
Manufactured Homes and CTP

The Single-Close Construction 

loan feature may certainly be 

used when financing new 

Manufactured Homes!

Example of Draw timing: 

1) Small deposit draw before

delivery of unit

2) Well/septic installation

3) Driveway installation

4) Landscaping

5) Final draw
Loan 

Purposes

Units Must:

 Have a site that conforms to state and local

standards.

 Be a new unit in stock that has never been

installed or occupied at any other site or

location.*

 Have a floor area of not less than 400 square

feet.

 Be placed on a permanent foundation.

 Meet or exceed the FMHCSS standards for the

geographic area the unit will be placed.

Manufactured Homes: Authorized Loan Purposes

7 CRF 3555.208, HB-1-3555 Chapter 13.6

Manufactured Homes

Combination Construction to Permanent Loan
The Agency Will Not Guarantee:

 The purchase of a unit without an eligible site.

 Repairs associated with a unit not already 

financed by USDA.

 Furniture or any other movable articles of 

personal property.

o Wall to wall carpeting, refrigerators, ovens, 

washing machines, etc. are allowed.

 Additions or modifications other than structures 

built to engineered designs.

Manufactured Homes: Loan Restrictions

7 CRF Part 3555.208, HB-1-3555 Chapter 13.7
The Agency Will Not Guarantee:

 The purchase of a unit moved from a site other 

than a dealer’s lot.

 Units older than 12 months from date of 

purchase agreement.

 A unit with a tow hitch or running gear remaining.

Manufactured Homes: Loan Restrictions

7 CRF Part 3555.208, HB-1-3555 Chapter 13.7
Lender’s Permanent File Must 

Contain:

 An itemized cost breakdown of the total 

package.

 Dealer certification that no cash back will be 

paid directly to the applicant.

 Dealer certification that proposed cost is the 

full price of the unit.

Manufactured Homes: Construction & Site Requirements

7 CRF Part 3555.208, HB-1-3555 Chapter 13.8
Lender’s Permanent File Must 

Contain:

 Foundation plan that meets HUD Handbook

4960.3 guidelines.

 Plot and site development plans.

 Inspections required per HB-1-3555,

Chapter 12.

 Contractor certification that units were

properly joined and sealed and sustained no

damage during transportation and set up.

Manufactured Homes: Construction & Site Requirements

7 CRF Part 3555.208, HB-1-3555 Chapter 13.8
Additional Closing Requirements:

 Warranty: Dealer must provide the borrower with 

a copy of all manufacturer warranties.

 Certifications: Attachments 13-A and 13-B may 

be used to document manufactured dealer and 

contractor certifications.

 Real Estate Tax: Unit and site must be 

classified, zoned, and taxed as real estate.

 Title and Lien: Both the unit and the site must be 

evidenced by a recorded mortgage or deed of 

trust.

Manufactured Homes: Loan Closing

7 CRF Part 3555.208, HB-1-3555 Chapter 13.9
The 23 states included in the pilot are: 

CO, IA, LA, MI, MS, MT, NV, NH, NY, ND, 

OH, OR, PA, SD, TN, TX, UT, VT, VA, 

WA, WV, WI, and WY. 

Must be processed manually (GUS may 

be used only to upload documents).

Guidance:Federal Register :: Single 

Family Housing Section 502 Direct and 

Guaranteed Manufactured Housing 

Pilots

Manufactured Homes: Pilot Program

https://www.rd.usda.gov/sites/default/files/rdul-pilots_0.pdf
Manufactured Housing Pilot has been renewed

Link for Pilot in the Federal Register

Unit must...

• Have no alterations or

modifications since

construction in the factory

except for...

• Porches, decks, or other

structures which were built to

engineered designs or were

approved and inspected by

local code officials are

acceptable.

States included in the pilot 

are: CO, IA, LA, MI, MS, MT, 

NV, NH, NY, ND, OH, OR, PA, 

SD, TN, TX, UT, VT, VA, WA, 

WV, WI, and WY. • Have been constructed on or

after January 1, 2006.

• Not have been previously

installed on a different

homesite.

• Have a floor area of not less

than 400 sq. feet.

• Meet all other criteria set

forth in 7 CFR Part 3555

and HB-1-3555.

Manual File Submission Job Aid
GUS Screens
Each Lender employee who 

utilizes GUS is required to have 

their own individual Login 

43

No Sharing of GUS Logins
44

CTP Coding in GUS 
45

CTP Coding in GUS 
After the Issuance of the Loan Note Guarantee

Closing Out the Loan in LLC (Lender Loan Closing System)

HB-1-3555, Chapter 16 
Lender Loan Closing System (LLC)

Submitting the Closing Package

• Lenders will access the LLC system

through the USDA LINC site

• Lenders can submit a loan closing,

cross reference borrowers and view

documents and payment history

• Lenders will complete all applicable

field and upload required documents

through this link

• Payment of the guarantee fee and

the technology fee will be completed

through the pay.gov interchange

https://usdalinc.sc.egov.usda.gov/RHShome.do
Retrieving the Loan Note Guarantee

Loan Note Guarantee

• The LNG for Lender Loan closing

may be viewed from the Single

Family Housing Lender

Administration List OR

• Select Obligation or Loans and

“submit”

• To display available documents,

select “Display Documents” from the

Action Dropdown
Single Close Construction Close Out

Single Close 

Construction

• Once construction is complete,

the lender will need to go back

into the LLC System to select

the appropriate “Completion

Type”

• Access the loan by inputting

Borrower ID, SSN, Name/State,

or Lender Loan Number

• Select “Single Close

Construction/Rehab” in the

Action drop down
Single Close Construction Close Out

Principal Reduction Only

• Enter the construction complete

and principal reduction fields

• Update the modified unpaid

principal balance and the

amount of the principal

reduction

• Upload documentation of

evidence of the principal

reduction and lender

certification
Single Close Construction Close Out

Principal Reduction w/ 

Loan Modification

• Enter the construction complete 

and principal reduction fields

• Update the modified unpaid 

principal balance and the 

amount of the principal 

reduction

• Loan Modification Date and 

lower Interest Rate, when 

applicable

• Upload documentation of 

evidence of the principal 

reduction and lender 

certification
Single Close Construction Close Out

Construction Complete 

(No Principal Reduction 

or Loan Modification)

• Enter only the construction

completion date

• Upload documentation of

evidence of the principal

reduction and lender

certification
Resources
54

WEBSITE: USDA Rural Development 

 https://www.rd.usda.gov

Access Single 

Family 

Housing 

Programs by 

clicking the 

link shown
55

WEBSITE: USDA Rural Development 

https://www.rd.usda.gov

Click the link 

shown
Copyright © 2015 Accenture All Rights Reserved. 56

HB-1-3555

Also: HB-1-3555 

SFH Guaranteed 

Loan Program 

Technical 

Handbook

https://www.rd.usda.gov/resources/directives/handbooks

Chapter 12: Property and Appraisal 

Requirements

Section 6: Combination Construction 

to Permanent & Rehab Loans

{7 CFR 3555.105}
57

HB-1-3555

Documents and Resources 

include Handbook updates, 

forms, and checklists

Online training modules 

include guidance on 

“Combination Construction 

to Permanent” loans 

https://www.rd.usda.gov/page/usda-linc-training-resource -library 
58

HB-1-3555 Lender Webpage

Monitor posted turn 

times daily

Don’t forget to sign up 

for GovDelivery 

updates

https://www.rd.usda.gov/page/sfh-guaranteed-lender 
59

Have a question on 

POLICY?

Contact the Program team!

Need TRAINING?

Contact the LPA team!

Have a question on a 

SPECIFIC FILE?

Contact the Prod teams!
60

Live Calls: 

CALL USDA

(833) 

314-0168

Option:

Turn Time Updates: 1

Specific File Questions: 2

Lender Recertifications/Approvals: 3

Policy & Scenario Questions: 4

GUS Technical Questions: 5
Copyright © 2015 Accenture All Rights Reserved. 61
End Slide 

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