Construction Loans And Consumer Protection
December 13, 2022
The U.S. Chamber of Commerce describes non-bank lenders as, "a financial institution that lends money but doesn’t operate with a full banking license. It does not offer deposit, checking, or savings services."
This definition is important, because non-bank entities have become more common in the construction loan space over the years, and now the federal government is stepping up efforts to hold these companies accountable should they run afoul of the law.
In December 2022, the Consumer Financial Protection Bureau (CFPB) announced a proposed rule that could enhance protections for those who want to build a home.
Under the CFPB proposed rule, “non-bank entities” would be required to disclose court judgments against them to the CFPB, which would add those items to a publicly available database.
This allows the consumer to make a more informed choice about a non-bank company they might be thinking of applying with for a One-Time Close loan.
As you might have guessed at the start of this article, there are some nuances at work. Some reading this might assume that the CFPB’s additional scrutiny on non-bank entities would extend to appraisers, inspectors, and other third parties. Is this true?
The Consumer Financial Protection Bureau seems focused on a type of lender, not a third-party service provider, at least for the purpose of this proposed rule.
What do non-banks do? A non-bank entity may offer credit, real estate services, or act as a go-between for transmitting money. They may act like a lender in a variety of ways, but do not function as a bank in terms of savings accounts, checking, etc.
Under the current version of the proposed rule, each non-bank entity would be required to have a senior official responsible for informing the federal government of that entity’s compliance with federal law. And any non-bank with a ruling or judgment against it would be required to report that to CFPB.
This is an issue of transparency, or at least added transparency.
But you don’t have this protection yet, which is to be determined at a later date. The CFPB published its proposed rule on this issue for a 60-day public comment period. Once that public comment period ends, the proposed rule gets a review.
CFPB may decide to set a “final rule” and put the entire proposal into a formal regulation. Or CFPB may modify the proposed rule, reopen the comment period, and try again. Or it may choose to drop the matter entirely depending on the results of the public commentary.
This added scrutiny on non-bank lenders can only help consumers interested in using such information when deciding on a construction loan.
But in the meantime you can still protect yourself even without the rule--it pays to shop around for a construction lender. Compare costs, interest rates, and other expenses between five or more lenders and see where the most competitive options are.
Want More Information About One-Time Close Loans?
We have done extensive research on the FHA (Federal Housing Administration) and the VA (Department of Veterans Affairs) One-Time Close Construction loan programs.
We have spoken directly to licensed lenders that originate these residential loan types in most states and each company has supplied us with the guidelines for their products. We can connect you with mortgage loan officers who work for lenders that know the product well and have consistently provided quality service.
If you are interested in being contacted by a licensed lender in your area, please send responses to the questions below. All information is treated confidentially.
OneTimeClose.com provides information and connects consumers to qualified One-Time Close lenders to raise awareness about this loan product and to help consumers receive higher-quality service.
We are not paid for endorsing or recommending the lenders or loan originators and do not otherwise benefit from doing so. Consumers should shop for mortgage services and compare their options before agreeing to proceed.
Please note that investor guidelines for the FHA and VA One-Time Close Construction Program only allow for single-family dwellings (1 unit) – and NOT for multi-family units (no duplexes, triplexes or fourplexes).
In addition, the following homes/building styles are not allowed under these programs: Kit Homes, Barndominiums, Log Cabin Homes, Shipping Container Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes.
Contact Us: Send Us Your Request – Spam Safe
Please send your email request to [email protected] which authorizes OneTimeClose.com to share your personal information with one mortgage lender licensed in your area to contact you.
1. Send your first and last name, e-mail address, and contact telephone number.
2. Tell us the city and state of the proposed property.
3. Tell us your and/or the Co-borrower’s credit profile: Excellent – (680+), Good - (640-679), Fair – (620-639), or Poor- (Below 620). 620 is the minimum qualifying credit score for this product.
4. Are you or your spouse (Co-borrower) eligible veterans? If either of you is an eligible veteran, down payments as low as $0 may be available up to the maximum amount your debt-to-income ratio per VA will allow – there are no maximum loan amounts as per VA guidelines. Most lenders will go up to $1,500,000 and review higher loan amounts on a case-by-case basis. If not, the FHA down payment is 3.5% up to the maximum FHA lending limit for your county.
This definition is important, because non-bank entities have become more common in the construction loan space over the years, and now the federal government is stepping up efforts to hold these companies accountable should they run afoul of the law.
In December 2022, the Consumer Financial Protection Bureau (CFPB) announced a proposed rule that could enhance protections for those who want to build a home.
Under the CFPB proposed rule, “non-bank entities” would be required to disclose court judgments against them to the CFPB, which would add those items to a publicly available database.
This allows the consumer to make a more informed choice about a non-bank company they might be thinking of applying with for a One-Time Close loan.
As you might have guessed at the start of this article, there are some nuances at work. Some reading this might assume that the CFPB’s additional scrutiny on non-bank entities would extend to appraisers, inspectors, and other third parties. Is this true?
The Consumer Financial Protection Bureau seems focused on a type of lender, not a third-party service provider, at least for the purpose of this proposed rule.
What do non-banks do? A non-bank entity may offer credit, real estate services, or act as a go-between for transmitting money. They may act like a lender in a variety of ways, but do not function as a bank in terms of savings accounts, checking, etc.
Under the current version of the proposed rule, each non-bank entity would be required to have a senior official responsible for informing the federal government of that entity’s compliance with federal law. And any non-bank with a ruling or judgment against it would be required to report that to CFPB.
This is an issue of transparency, or at least added transparency.
But you don’t have this protection yet, which is to be determined at a later date. The CFPB published its proposed rule on this issue for a 60-day public comment period. Once that public comment period ends, the proposed rule gets a review.
CFPB may decide to set a “final rule” and put the entire proposal into a formal regulation. Or CFPB may modify the proposed rule, reopen the comment period, and try again. Or it may choose to drop the matter entirely depending on the results of the public commentary.
This added scrutiny on non-bank lenders can only help consumers interested in using such information when deciding on a construction loan.
But in the meantime you can still protect yourself even without the rule--it pays to shop around for a construction lender. Compare costs, interest rates, and other expenses between five or more lenders and see where the most competitive options are.
Want More Information About One-Time Close Loans?
We have done extensive research on the FHA (Federal Housing Administration) and the VA (Department of Veterans Affairs) One-Time Close Construction loan programs.
We have spoken directly to licensed lenders that originate these residential loan types in most states and each company has supplied us with the guidelines for their products. We can connect you with mortgage loan officers who work for lenders that know the product well and have consistently provided quality service.
If you are interested in being contacted by a licensed lender in your area, please send responses to the questions below. All information is treated confidentially.
OneTimeClose.com provides information and connects consumers to qualified One-Time Close lenders to raise awareness about this loan product and to help consumers receive higher-quality service.
We are not paid for endorsing or recommending the lenders or loan originators and do not otherwise benefit from doing so. Consumers should shop for mortgage services and compare their options before agreeing to proceed.
Please note that investor guidelines for the FHA and VA One-Time Close Construction Program only allow for single-family dwellings (1 unit) – and NOT for multi-family units (no duplexes, triplexes or fourplexes).
In addition, the following homes/building styles are not allowed under these programs: Kit Homes, Barndominiums, Log Cabin Homes, Shipping Container Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes.
Contact Us: Send Us Your Request – Spam Safe
Please send your email request to [email protected] which authorizes OneTimeClose.com to share your personal information with one mortgage lender licensed in your area to contact you.
1. Send your first and last name, e-mail address, and contact telephone number.
2. Tell us the city and state of the proposed property.
3. Tell us your and/or the Co-borrower’s credit profile: Excellent – (680+), Good - (640-679), Fair – (620-639), or Poor- (Below 620). 620 is the minimum qualifying credit score for this product.
4. Are you or your spouse (Co-borrower) eligible veterans? If either of you is an eligible veteran, down payments as low as $0 may be available up to the maximum amount your debt-to-income ratio per VA will allow – there are no maximum loan amounts as per VA guidelines. Most lenders will go up to $1,500,000 and review higher loan amounts on a case-by-case basis. If not, the FHA down payment is 3.5% up to the maximum FHA lending limit for your county.
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Articles, Updates, and Guidelines
FHA Single Close Construction Loans
July 26, 2024The Federal Housing Administration (FHA) offers qualifying borrowers the option to build a home from the ground up using a Single Close FHA Construction Loan. This program, also known as a One-Time Close construction mortgage, allows borrowers to finance the construction of a new home and convert it into a permanent mortgage with just one closing, streamlining the often complex process of building a house.
The VA Construction Loan Timeline
July 19, 2024VA One-Time Close construction loans help qualifying veterans build homes they will own and occupy once the construction phase is complete. One-time close loans, or construction-to-permanent loans, combine construction and permanent financing into a single closing procedure. VA One-Time Close mortgages have no VA-required down payment or mortgage insurance, making them attractive options for qualifying borrowers.
Construction Loan Choices
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