In a move to increase affordable housing inventory, Fannie Mae is expected to soon introduce a new construction loan program. Fannie Mae is considering a pilot program to address the current lack of affordable homes on the market by potentially making it cheaper and easier for prospective homebuyers to obtain loans to construct new homes.
For its initial pilot program, Fannie Mae would aim to eliminate certain of the hurdles that borrowers face in connection with new-home construction. Currently, if a borrower hires a builder, he or she will typically obtain a temporary loan from a bank. The bank or another lender may then refinance the loan into a mortgage when the home is complete. While lenders are able to originate a mortgage with the intention of selling it to Fannie Mae, they are not able to do so until the home is finished. As a result, lenders are not always willing to take risk with new construction because it may require them to hold a loan on their own books for months.
Under the new pilot program, Fannie Mae would move up the sale of the construction loan in order to finalize the sale. Specifically, Fannie Mae would purchase the loan on the first day of construction, potentially making the loan cheaper and easier to obtain. The borrower would not begin making payments on the loan until after he or she moved into the home.
Additional information regarding Fannie Mae’s expected pilot program is available here.