Are there special documentation requirements for Construction to Permanent Mortgages?

In addition to standard FHA documents, the following documents are required: 
  • A Construction Rider to the Note and Construction Loan Agreement. These documents may be in any form acceptable to the mortgagee, but they must provide that all special construction terms end when the construction loan converts to a permanent mortgage. After conversion, only the permanent mortgage terms (based on standard documents) continue to be effective, making the permanent mortgage eligible for FHA mortgage insurance. 
  • A disclosure issued to the borrower explaining that the mortgage is not eligible for FHA mortgage insurance until after a final inspection, or the issuance of a certificate of occupancy by the local governmental jurisdiction, whichever is later. 
  • Either, a fully executed contract agreement between the builder and the borrower, which includes the contractor’s price to build; or documentation of the actual costs of construction where the borrower is acting as the general contractor. 
  • Documentation of land acquisition or land ownership.
  • A payoff statement and evidence of the actual payoff if mortgage proceeds are used to purchase or pay off debt on the land.    
If the loan-to-value (LTV) exceeds 90%, the Mortgagee must comply with Inspections or Warranties for Maximum Financing and Required Documentation for Maximum Financing guidance in Handbook 4000.1 II.A.8.i.iii.  
If the LTV is 90% or less, the Mortgagee must comply with the documentation requirements found in the New Construction Financing LTV Limit guidance in Handbook 4000.1 II.A.8.i.iv. 
For endorsement, the Mortgagee must:
  • obtain a title update after conversion to the permanent mortgage to show that the mortgaged property is free and clear of all liens other than the mortgage; and 
  • verify and document that the construction was fully drawn down and that any remaining funds were used to pay down the principal balance on the permanent mortgage.  
For additional information see Handbook 4000.1 II.A.8.j. available at 


All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.

Topic Number: KA-04731