For an FHA construction-to-permanent transaction, which approach is appropriate when determining program eligibility?
Correct Answer
C) Apply the current FHA program requirements to the borrower, property, builder, construction, and permanent financing
Why this is correct: The correct answer is "Apply the current FHA program requirements to the borrower, property, builder, construction, and permanent financing." FHA construction-to-permanent loans are subject to specific FHA eligibility rules that cover all aspects of the transaction. This includes the borrower's credit and income, the property's eligibility and appraisal, the builder's qualifications and warranty, and the standards for both the construction draws and the permanent mortgage. These requirements must be met for the loan to be eligible for FHA insurance. Why the other choices are wrong: "Assume every conventional construction rule is identical" is wrong because FHA and conventional (non-government) construction programs have different rules, standards, and guidelines. "Ignore builder and property requirements because the loan will convert" is wrong because FHA requirements for builder approval and property standards are mandatory, regardless of the future conversion. "Treat land ownership as automatic FHA approval" is wrong because owning the land is just one factor; it does not waive other FHA requirements for the borrower, builder, or construction plans. Exam tip: For government loans (FHA, VA, USDA), always consult the specific program handbook (e.g., FHA Single Family Housing Policy Handbook) for current eligibility rules.
Why This Is the Correct Answer
Why this is correct: The correct answer is "Apply the current FHA program requirements to the borrower, property, builder, construction, and permanent financing." FHA construction-to-permanent loans are subject to specific FHA eligibility rules that cover all aspects of the transaction. This includes the borrower's credit and income, the property's eligibility and appraisal, the builder's qualifications and warranty, and the standards for both the construction draws and the permanent mortgage. These requirements must be met for the loan to be eligible for FHA insurance. Why the other choices are wrong: "Assume every conventional construction rule is identical" is wrong because FHA and conventional (non-government) construction programs have different rules, standards, and guidelines. "Ignore builder and property requirements because the loan will convert" is wrong because FHA requirements for builder approval and property standards are mandatory, regardless of the future conversion. "Treat land ownership as automatic FHA approval" is wrong because owning the land is just one factor; it does not waive other FHA requirements for the borrower, builder, or construction plans. Exam tip: For government loans (FHA, VA, USDA), always consult the specific program handbook (e.g., FHA Single Family Housing Policy Handbook) for current eligibility rules.
More Origination Questions
Before the team acts on a servicing handoff check, a closing coordinator must address Asset Verification and Reserves. Which response is most defensible?
An MLO is reviewing procedures for a case where a cost changes after the Closing Disclosure has already been provided. What is the proper handling?
During a post-application update, a quality-control reviewer encounters a Credit Analysis and Evaluation issue. Which response should avoid a shortcut that would misapply the rule?
A construction-to-permanent loan will disburse in 5 draws over 11 months before the permanent phase begins. Which Regulation Z appendix provides a disclosure method for multiple-advance construction transactions?
Before closing, the team discovers that a borrower asks which upfront charge can be collected before intent to proceed. What is the safest compliant answer?
A construction loan agreement allows advances only after documented completion of specified work. A builder requests the next draw, but no completion evidence has been provided. What should occur?
Before releasing the final construction draw, which combination most directly supports project completion and clear collateral?
A construction-to-permanent loan will convert to a substantially higher fully amortizing payment. Which payment is especially important when assessing the borrower's long-term repayment capacity?
A construction-to-permanent note states that conversion requires completion, a certificate of occupancy, and no unresolved liens. Construction is finished, but a mechanic's lien remains. What should happen?
A branch manager asks about a loan file because a processor wants to omit known monthly obligations from underwriting. What should happen?
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