Construction loans can be a time of excitement as well as high stress for customers. You really need a highly skilled construction loan officer to help you through this process. An inexperienced loan officer that says "no problem" to all your questions will become a nightmare process for you and may not even be able to close the loan. Many times you will be working with Builders (who work with Sub-Contractors), Suppliers, Architects, City/County workers & inspectors, Sellers of land, Listing/Sales Realtors, Well Drillers, Septic Installers, Utility Companies and others. Frequently you will need to go back and forth between some of these people to get paperwork finished. Some are more helpful than others are in your requests for their assistance. While you need to keep things moving, allow for delays beyond your control. Your construction loan officer will be dealing with the appraiser, escrow company, underwriter, Construction Review Department and many others, as well as advising you through your process with others. Choose the loan officer and company you work with wisely. I have been doing construction loans for years and have many sources to help you get the best package for your project. Overview of Construction Loans Most of the Construction Loans we do are "One Time Close" (OTC) which saves the borrower money from having to pay loan fees on two separate loans. The old fashioned way people built houses was to take a construction loan, then apply for a "take out" permanent loan once the house was complete to pay off the construction loan. OTC are better as you only pay fees once as there is only one loan and you get your permanent loan approval before you start construction. No surprises of not qualifying at the end. Construction loans can be used to build a new Primary Residence, Vacation Home or Investment (rental) property. We appraise the property as though your home is complete based on the Plans & Specifications and the construction contract your builder provides. We help your builder get approved at the lender to construct your home. We add up all the costs for the land purchase, permits, wells, utilities, architectural drawings/plans, home construction, etc. and develop what is called an "Acquisition Cost". Your loan amounts are based on how much percentage of the Acquisition Cost or Appraised value you want to borrow. There are ways to finance 95% of your home and even get reimbursed for money you spend before the loan closes for pre-paid items like plans, wells, permits, etc. Most construction lending requires 10% or more down up to $417,000 loan amounts and really good credit scores (Many lenders require 700+ scores). We have much larger loan amounts available to over $1,500,000 but the down payment % increases with the higher loan amounts. Once the OTC loan is complete after you have signed the loan papers, the first "Draw" is normally used to pay the purchase price of the land. If you already own the land or home, the first "Draw" pays off the existing mortgage. Then your builder starts on the construction. About once a month, the builder will ask for another "Draw" to be paid for work completed and installed on the project. These Draws are usually paid to you and the builder together so you can sign off on the work as well. When you request a Draw, the lender sends out an inspector (usually within days) to review the work and then the lender issues a check based on the work completed as per the lien item dollar amount on the specifications list. Most OTC loans will use 6-7 draws during construction though there is no limit to the number of Draws you can get. Each time you request a Draw though, it costs about $150 for the inspector and process that is charged against your available loan fund for construction. Pre-Fab Log Homes and Manufactured Homes usually want a Draw ready as they deliver the package to curbside. This can be arranged in advance as long as we coordinate it properly and you are there as the package hits the lot. Each OTC construction loan deals not only with the final permanent loan you are normally familiar with, but also how to finance the land purchase and construction costs to completion of the dwelling. You will be making many decisions on how we help you finance both of these two parts. There is a "Construction Period" and a "Permanent Period" to your OTC loan. Some OTC construction loans combine both periods in to one loan like a standard 30 year fixed and others break it in to two parts. On these, you can finance the construction period with an ARM or fixed rate. Your permanent loan can be most any normal mortgage loan product such as 30 year fixed, 15 year fixed, 10/1 - 5/1 - 3/1 ARM, etc. You can lock both parts or neither at application. You can make payments on the loan during the construction period. Normally you would just pay interest only payments each month on the balance of the loan as Draws come out of the bank. Kind of a "pay as you go" approach. You can also set-up an account as part of the loan to pay the payments for you during the construction phase until the house is complete. This option allows you to not make any payments on your new home until it is completed. OTC loans are arranged for a construction term you choose. Normal choices are for 4 months, 9 months, 12 months and maximum 18 months to complete construction. Then the loan modifies to the remaining term, normally 30 years, for your permanent loan. If you have locked your permanent loan rate at application, some of our OTCs allow you to "float down" the rate to the current rate, if current rates at the time of modification are lower than you locked at application. Some even allow you to modify your loan from a ARM locked at application to a 30 year fixed loan at modification if you choose to. Most of the OTC loans that we do require full documentation of income (paystubs, W2s & sometimes tax returns) and assets (bank & retirement account statements), but we do have stated income available also. These truly are "Customized" loans. We are experts at OTC loans and have many different options available to help you get the loan that fits your situation. You do not want a rookie doing your OTC loan saying "no problem" at every question you ask, or you will have MANY problems. We are members of the Home Builders Association (HBA) and know what we are doing when it comes to financing custom construction.
Construction loans by their very nature are all unique. It takes a highly skilled and experienced construction loan officer to process a construction loan to closing. While communication between the customer and loan officer is important on every loan, on construction loans you will find much closer contact throughout the process. There is much more documentation required from you on a construction loan. Steps in the construction loan process have to be completed in sequence. Delays in getting documentation to your loan officer for a step in the process, will delay the final closing as well. We want to help make you aware of some normal processes on most construction loans, so you can work together with your loan officer to keep to your requested timelines for closing. Construction Loans are approved differently than normal refinances or purchases. There are usually two major points when your loan is reviewed at the lender: A) Initial Underwriting Review of the “Credit Package” The lender simply reviews your requested loan amount, payments, income, debt ratios, credit report, assets and other items pertaining to your financial situation and compares them to their guidelines. The lender may also review some preliminary general construction costs or scenarios. The lender does not review any construction related items for any type of final okay at this point in the process. This initial lender review is very similar to a normal refinance or purchase transaction and can happen relatively quickly. B) Final Underwriting & Construction Review of Construction Package The underwriter does a final review of the entire complete package. After underwriter review, the total application package is sent for Construction Review. Construction costs, materials description. plans, contracts, etc. are analyzed for industry norms. The appraisal is reviewed for accuracy and compliance to guidelines. Your builder goes through an approval process to be sure the lender is comfortable with your builder being able to complete the project as submitted. This Construction Review process is similar to the way mortgage loans were approved back 30-40 years ago and takes as long as it did then. You need to expect 5-7 business days for this process. It is normal to expect conditions or questions we need to send in to underwriting for review, 1-2 business days. Then the Loan Papers take 2-3 business days to complete and have to be sent to escrow. You sign the Loan Papers and escrow sends them overnight back to the lender for review. The loan closes and funds a day or two later. Closing and funding three weeks from the start of this point in the process is the normal timeframe on most construction loans. You need to provide these items before we can order your appraisal: (Construction Appraisals take about 2 weeks to get back in a metro area and can take much longer in rural areas.)
You need to provide these items before we can submit for Final Underwriting Review:
New information obtained during the loan process may require more paperwork & delays. Examples of this include Builder Fixed Price Contracts that do not match Cost Breakdowns, changes to plans or materials, issues with the appraisal, City or County agency’s last minute requirements, Builders that may not be approvable by the lender, underwriters asking for clarification on items in your file, and other items. We will work with you to overcome these situations as quickly and simply as we can. Many times, there are multiple ways to overcome them and we may pursue them all to see what works fastest. Try to give yourself plenty of time for getting necessary documentation from others. Construction loans can be a time of excitement as well as high stress for customers. Many times you will be working with Builders (who work with Sub-Contractors), Suppliers, Architects, City/County workers & inspectors, Sellers of land, Listing/Sales Realtors, Well Drillers, Septic Installers, Utility Companies and others. Frequently you will need to go back and forth between some of these people to get paperwork finished. Some are more helpful than others are in your requests for their assistance. While you need to keep things moving, allow for delays beyond your control. Most Construction Loans have a Non-Conversion/Modification Fee. Most lenders write Construction or OTC loans so that they can have the final loan as well. The loan during the construction period (9 mos. is typical), has to be converted or modified to the final financing period (Remainder of 30 year loan, or 351 mos. is typical). If you do not do this most lenders charge a 1% fee of the original loan or current balance. They do not want you to refinance after construction is complete. See your loan papers for your exact dates & terms of your loan. Your loan officer can help you to get the final loan for your desired situation and avoid extra fees if possible. Typically this is when you buy a piece of land and want to build a custom home on it. Normally you will meet with us to discuss the loan early in the process and then again once you have your builder picked out with Plans and Specs. At this point we order the appraisal. The appraiser comes up with an appraised value as though your new home is complete and sitting on the land. We assemble your loan package with Builder Resume, Plans & Specs., Pre-Paid Items (anything you have already paid for like Plans, permits, wells, etc.) and of course the normal loan application and personal documentation normal to any loan. This is when we help you decide on the different loan options explained above and submit your loan to the lender. Once your loan is approved, we order the loan documents to be sent to your escrow company for signing. Once the loan funds after signing, the land is paid off and you begin construction.
This is when someone wants to take an existing house and do some fairly major remodeling. We can do these loans with as little as $5,000 in construction costs but most are major jobs such as adding stories, extra rooms or complete rebuilds. You can do this loan for a house you are buying as part of the purchase or to refinance the house you already own. The procedures are the same as new construction as above, except your Plans and Specifications will include remodel activity instead of starting form the raw dirt. Again, the house will be appraised as though all the work is completed.
Ran Out of Money, Partially Completed Home Sometimes people start a construction or major remodel process and run out of money. They thought they had enough in the bank and found out things cost more than they thought or delays happen. Other times they tried to do construction with a HELOC and the lender closed the line in the middle of their construction. I can help, and have, in many of these cases. This type of loan of construction loan is especially difficult and needs the finesse of an expert to close. We need to know exactly where you are currently in the completion process and get plans, specs and your contractors fixed bid contract to complete the home. Some of these I process as a complete OTC as above, and others I can do as a Major Remodel or Rehab loan.
Manufactured Home Land Package We have loans that can help you finance the purchase of a piece of land and put a manufactured home on it. These are treated as a OTC loan (see Overview above) with a four month term. You pick out your manufactured home at the dealer, make an offer on a piece of land to put it on and contact a contractor that will set up the home on the land with any work that needs to be done. Many times your manufactured home dealer will have recommendations for contractors to do this. We appraise the overall package as though it complete and process your loan. There are special forms for the Plans and Specifications on Manufactured Home Land packages as there are obvious differences from building a stick built house from the ground up. One very big difference is that the dealer will want to be paid as he delivers the manufactured home to the site. This can be arranged in advance as long as we coordinate it properly and you are there as the home hits the lot. These need to be new homes, not ones bought used and moved. If you have a used home you want to use, please call us to discuss ways to help you.
Log Home, Pre-Cut, Etc. : Pre-Fab Homes with Delivered Packages These are treated as a OTC loan (see Overview above). You pick out your Log Home at the manufacturer or dealer, make an offer on a piece of land to put it on and contact a contractor that will build the home on the land with any work that needs to be done. Many times your Log Home dealer will have recommendations for contractors to do this. Sometimes the dealer will build the Log portion themselves and you hire a contractor that will do the roof and everything else. We appraise the overall package as though it complete and process your loan. There are special forms for the Plans and Specifications on Log Home packages as there are obvious differences from building a stick built house from the ground up. One very big difference is that the dealer will want to be paid as he delivers the Log Home package to the site. This can be arranged in advance as long as we coordinate it properly and you are there as the package hits the lot. Sometimes we can even arrange to pay a deposit on a Log Home before it leaves the factory as some small manufactures don't put the logs on the truck until they get some money.
We can arrange for "Owner/Builder" OTC loans sometimes in special cases, though these are getting harder to come by. Sometimes we have to do two separate loans, 1st a "Construction," then 2nd a "Take Out" refinance once the house is complete. These can be a licensed contractor building their own home for personal use or a regular person who wants to be their own "general contractor". The guidelines are a little more conservative on these usually requiring at least 10%-15% down and that you have contingency funds available for any unforeseeable cost overruns or changes built into your loan amount. These contingency funds are included in the calculations for acquisition costs.
|
|||
|
©
2008 Steve Emory at Pacific Residential Mortgage, LLC. All rights reserved.
