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What are USDA construction to permanent loan builder approval requirements?

February 11th, 2022 by Sean Stephens

What are USDA Construction to Permanent Loan Builder Approval Requirements?

How does a builder get approved for a USDA new construction loan? What are USDA construction to permanent loan builder approval requirements in Florida, Texas, Tennessee, or Alabama?USDA Single-Close Construction Loan in Florida, Texas, Tennessee, and Alabama

As you can imagine, these are common questions for homebuyers looking to take advantage of the USDA construction to permanent loan program, a.k.a. USDA Single-Close Loan.

In today’s short video, we will break down the USDA builder requirements and further explain this part of the USDA new construction loan process.

However, before we get started, don’t forget to download our USDA Blueprint for Success with the link below.  This free guide is designed to walk you through the USDA loan process and is a great resource for homebuyers and Realtors alike.

What are USDA construction to permanent loan builder approval requirements?

  1. USDA Construction to Permanent Loan – Contractor/Builder OverviewWhat can be included with a USDA Single-Close Construction Loan in Florida, Texas, Tennessee, and Alabama?

As a starting point, USDA guidelines include the following description for contractor-builder approval requirements:

A key to the success of the loan feature will be the financial stability and reputation of the builder constructing the home.

The approved lender and their agent, if any, will be responsible for approving participating builders.

Each builder seeking to participate will be subjected to a process that involves license verification, insurance validation, credit examination, reference verification and a criminal background check. Minimum credit examination will include obtaining a commercial credit report on the business.

Owner-builders are ineligible for this loan feature. Lenders are required to document their determination for eligibility of the builder to participate in the Rural Development mortgage transaction as further described in Handbook Chapter 15.”

  1. USDA Construction to Permanent Loan – Builder Approval Requirements

Additionally, USDA guidelines state that contractors or builders of USDA Construction to Permanent loans must meet the following eligibility requirements:

  • Two or more years of experience building and constructing all aspects of single-family dwellings similar the type of project being proposed;
  • Evidence of a state-issued construction or contractor license, as required by state law or local law;
  • Evidence of commercial general liability insurance with a minimum coverage of $500,000;
  • The builder/contractor must have an acceptable credit history being free of open judgments, collections or liens related to previous construction projects. The builder/contractor must not have a previous felony criminal record. A background check will be performed as part of the verification process.
  • This information may be obtained by such means as an individual credit report, business report, information published by the Securities and Exchange Commission (SEC), State Corporation Commission (SCC), LexisNexis, or Dun and Bradstreet; and
  • Contractors or builders who are constructing their own residence are ineligible.

USDA Rural Development in Florida, Texas, Tennessee, and Alabama.

  1. USDA Construction to Permanent Loan – Draw Process and Construction

Unlike an “end loan” where financing is brought in at the end of construction, a USDA Construction to Permanent Loan closes prior to construction beginning. After closing has occurred, construction draws are thereafter provided to the builder upon evidence that the work was done as specified. Examples of documentation which could be used to support that the work was previously completed by the builder include evidence of a third-party inspection, signed conditional lien waiver from the contractor/builder, and a title insurance endorsement for each draw.

However, remember that a successful process requires builder approval prior to closing!

 

As a USDA Approved Lender, we will walk you through the USDA loan qualifying process step-by-step. Just call or email to discuss your scenario and let us show you the “Metroplex” difference!

(800) 806-9836 X 280
SeanS@MPLX.org

Thank you again for forwarding and sharing today’s topic with any friends, family, co-workers, or clients who are looking to purchase or build a home!

P.S. – Remember to CLICK HERE to download your Free USDA Blueprint for Success!

USDA Blueprint for Success

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