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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January 11, 2024The Federal Reserve Bank of St. Louis estimates there were just under 18 million veterans in 2023. Add to that number of members of the Guard and Reserve, and you get approximately 19 million 360 thousand people. What do they need to know before taking advantage of their VA home loan benefits or the FHA One-Time Close construction loan program to build a home on their lot or land they buy with the loan?
January 4, 2024What makes an FHA One-Time Close construction loan (or any other type) different from a home loan to buy an existing home? Aside from the obvious aspects, such as needing to own or buy a plot of land to build on and hiring contractors to do the work to build the property, how do single-close construction loans differ?
January 3, 2024There is an FHA / VA backed One-Time close construction to permanent financing program currently available to eligible veterans with $0 down payment and to others with 3.5% down payment. Current lower home inventory levels may make it a good time to start planning to build a home utilizing this Single Close program.
