An experimental construction-to-permanent lending package intended to serve the growing market of buyers who hire contractors to put up primary or secondary residences of their own lots is being turned into a standard mortgage menu item.

Beginning immediately, Fannie Mae's HomeStyle Construction-to-Permanent Mortgage will be available nationally though 26 lenders, and more will be added all the time, the company said at the National Association of Home Builders convention in Dallas last week.

Fannie Mae doesn't make loans directly to consumers. Rather, the federally chartered financial institution purchases mortgages from local lenders, thereby allowing them to keep their vaults full to satisfy other borrowers.

The loans allows borrowers to combine construction financing and the final take-out loan into a single mortgage, erasing the need for a second, often costly closing. And as a result, buyers don't have to be concerned with requalifying if rates increase in the interim or obtaining another appraisal.

"This mortgage helps eliminate some of the paperwork and cost associated with another closing," Joe Biegel, Fannie Mae's vice president of single-family mortgage business, said at the convention.

The loan also benefits lenders by allowing them to offset some of the risks associated with construction loans. They can lock-in a single interest rate covering both phases, for example, and they can sell the mortgage to Fannie Mae as soon as the loan is closed.

And it plays a significant roll for small builders because they don't have to use their credit to finance the house. "It's a good way for small builders to prevserve their capital," said Paul Garland of Bank United, a major construction lender based in Houston. "This way, you have no financial liability, only performance liability."

The HomeStyle construction-to-perm loan allows borrowers to finance up to 95 percent of the home's value, including the land, to build a single-family, owner-occupied house, or up to 90 percent of two-unit owner-occupied properties and 80 percent of investor properties.

The construction phase can be for six, nine or 12 months. Funds are disbursed at various stages during the building process, and buyers pay interest only on the funds that are paid out. Once the house is completed, the mortgage automatically and seamlessly converts to a permanent first mortgage.

For list of participating lenders, call Fannie Mae's consumer resource center at 800-732-6643.

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Published: January 19, 2000

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When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated. He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year. Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association. He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972. The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country. He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others. Sichelman is married, the father of five and grandfather of eleven.