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Writer's pictureGloria Allan

Consumer Construction Guide


As a Certified Construction Specialist, I am here to provide you with tips and advice on building your new home, working with the construction build portion of the loan and the transition to permanent financing. This is a 2 step process requiring construction phase financing and a permanent term loan at completion, they are approved simultaneously using the appraisal and title work keeping the duplication of cost as minimal as possible. What is a construction loan? A home construction loan is a short-term, typically 12-month interest only loan that provides the funds required to build a residential property. Interest rates vary based on the loan to value, credit score etc. Extended terms are available based on projected time frames set by builder. Construction loans usually have a balloon of 1-3 years. Construction loan rates can be higher than traditional mortgage loan rates. With a traditional mortgage, your home acts as collateral - if you default on your payments, the lender can seize your home. With a home construction loan, the lender doesn't have that option, so they tend to view these loans as higher risk loans. The initial loan term generally lasts the length of your construction project. Because construction loans are on such a short timetable and they're dependent on the completion of the project construction phase and will then convert to the Permanent Term Loan chosen. How do construction loans work? 1. The borrower applies for credit approval ,submitting financials for review as requested by the automated approval issued. Once approved the appraisal and title work will be ordered. Minimum Credit Score is 680 for 80% loan to values, 720 for 80-90% loan to value.

2. The following documents are required for the appraisal to be ordered: Completed Set of Plans and Specifications, with elevations Contractor Questionnaire Fully executed Construction Contract Sworn Construction Statement

Detailed Materials list

Executed Site Plan

Building Permit

Builders Risk Insurance or Course of Construction Coverage


3. Appraisal And Title Work will be requested, the appraiser will receive a copy of all plans, specs, site plan, materials list and cost breakdown to assist in determining the value of the property upon completion. Appraised value is determined by the lesser of the total acquisition cost or completion value determined by certified appraiser.



4. Title Company will receive the order and legal description of the property to be secured by the mortgage. Any existing lien on the property will be paid at the construction closing so lender information will be needed to obtain payoff information. The Sworn construction Statement, Construction Contract and Building Permit will be provided as well.


5. Once the appraisal and title commitment have been completed and received, they will be submitted to underwriting for final approval issued for the permanent loan Subject to the completion of the project and to the Construction lender for the closing documents to be

executed, due to the complexity of the construction loan this will be an in person closing.


6. A construction draw at closing can be requested to cover start up, permitting, specialty items that require preorder with up to 50% upfront. Once Closed and mortgage is of record construction may begin on the property.


7. Inspection or progress reports will be required at each draw request to ensure all work being paid on has been completed, the title company will also complete a mechanic's lien audit with each draw to ensure all previous payments disbursed have been received and signed off on by builder, sub-contractors and or suppliers. (Lien waivers are attached to each check disbursed) Monthly draws are typical, with inspections, please anticipate 3-5 business days for funds to be disbursed.


8. Once construction is completed a Certificate of Occupancy will be required, if one is not required in your specific area a letter stating so will be necessary from the governing municipality.

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