The Construction Loan Process
The Construction Loan Process involves everything leading up to the closing and start of construction on your new home. Once you are approved by your lender and your builder is registered, steps need to be taken and documents need to be provided in order to make it to closing.
Drawing Plans and Specifications Are Required
A clear set of architectural drawings with floor plans, showing all dimensions and outside elevations, as well as drawings of the exterior needs to be provided in the final plans and specifications. The contractor will have to provide further details regarding the type of materials which will go into the construction of the home; wood shingle or lightweight tile roofing; brick or stone exterior.
You'll Need an Appraisal Report
The final plans are important to understand the cost of building the home, but it is necessary for the appraisal as well. Just like any other mortgage, lenders need to know the value of your home in order to calculate its Loan-to-Value ratio. But appraising a home that has not been built is a little trickier. That's why professional appraisers need detailed plans and specifications, as well as the total budget for the project to determine its value subject to completion.
The Construction Contract Defines Responsibilities
You and your builder will draw up a Construction Contract. This agreement between both parties outlines the planned construction project, the agreed upon cost of building, and the project's timeframe. The Construction Contract must be fully turnkey, meaning the builder must be responsible for all aspects and the hiring of any and all subcontractors.
Cost Breakdown and Draw Schedule
A cost breakdown needs to be provided by your builder, including all costs going into the construction of your new home, with the total matching that on the Construction Contract. Your lender will usually provide the cost breakdown form to be completed, and have specific guidelines for how draws for the builder are determined and disbursed. Some lenders utilize a line-item percentage of completion method for determining draws while others may use a project percentage of completion method. Typically, funds are disbursed on the basis of work completed.
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October 26, 2022If you want to build a home with a One-Time Close construction loan as we come to the last few months of 2022, you are thinking about building during a time when the prices for existing construction are finally beginning to slow down. A lack of inventory is one of the reasons why prices went up this year. It's also a good motivator for people to build instead of buying the more scarce existing construction homes that might be caught up in hot bidding wars.
October 18, 2022What makes government-backed single-close construction loans different from their conventional equivalents? Should you choose an FHA or a VA One-Time Close loan over a conventional construction loan? Both conventional loans and government-backed mortgages offer 30-year, fixed-rate loan terms, options to refinance, and for FHA and conventional mortgages, mortgage insurance premiums.
October 13, 2022An article published by National Public Radio points out that house prices have increased as much as 40% in the last 24 months. That has left some potential borrowers wondering if it's smart to build a new home right now. The NPR report also mentions the fact that existing construction prices may have hit their peak in June of 2022, and since then prices on those homes have come down by as much as six percent.
