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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November 9, 2023At the time of this writing, the FHA is preparing to release 2024 FHA loan limits for purchase loans, construction loans, and renovation mortgages. If you are building a home and are unsure what loan limits may apply to you, keep reading. We address this issue below. Some might wonder if delaying their loan application until the new year is a good idea, assuming loan limits will be higher.
November 3, 2023If you are building a home for the first time, finding the right construction loan lender for you might seem daunting, especially when comparing lenders and deciding which one has the best options. Shopping around for the right construction loan means comparing several online reputations, user reviews, and even Better Business Bureau reports in cases where you are not sure about one company or another.
October 25, 2023What do you need to know when comparing contractors on your journey to build a dream home from the ground up? If you want a One-Time Close construction loan, you will need to take a few steps in the planning stages to make sure your project is as hassle-free as possible.
