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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February 17, 2022Comparatively speaking, buying an existing home is a faster process than building on your own land. But a VA construction mortgage gives you the ability to approve the design for your home, which makes the wait worth it for many borrowers. What do you need to know about this process?
February 9, 2022The FHA One-Time Close construction loan, the VA equivalent of it, USDA construction loans, and even conventional construction mortgages all have features that make them different than existing construction loans.
February 5, 2022There are VA, FHA, and even USDA One-Time Close loans, and whichever type you choose, you have the advantage of a government-backed mortgage with a lower down payment requirement (3.5% minimum) than non-government-backed mortgages.
