Building a new home is rewarding and exciting. Understanding the home construction loan process is an important first step in your home building journey
The Construction-to-Permanent Loan process is similar to the process of a standard home purchase or a refinance transaction. But, unlike a purchase transaction for an existing home, a Construction-to-Permanent Loan involves determining the value of a home that is not yet constructed.
To assist the appraiser in determining the value of your new home, I request information on the planned improvements and construction costs. I also review the performance history of your builder to ensure a track record of success in on time and on budget home completions.
To help you better understand how the Construction-to-Permanent Loan process works, I've provided this simple breakdown of the Construction Loan Process to help make your home building journey as easy as possible.
These are the items you should be aware of during the costruction loan process:
Construction Loan Application
Loan Application
After completing your preliminary Construction Loan Budget Estimate, you will be sent a loan application kit, which includes a loan application form (1003), loan program disclosures, and documentation required from your building professional.
The documentation required by your builder include:
Line Item Cost Breakdown
Prepared by your builder, this is a breakdown of all costs (including soft costs and hard costs) associated with building your house.
Builder's Statement
Required from your builder to ensure that your builder is experienced, has a proven track record, and is capable of performing under the terms of the Construction Contract.
General Contractor License
Copy of your builder's license in states where contractors are required to be licensed. Not required in all states.
Construction Contract
An agreement between you and your builder that details the planned construction project, amount of time to build the home, and agreed-upon cost. The construction loan term should be at least as long as your construction contract.
Insurance Requirements
Talk to your insurance agent to meet dwelling coverage limits.
| Disbursement |
Unlike an existing home loan, your construction funds are disbursed during the construction phase as the construction of your new home progresses. These payments are called draws or disbursements. Lenders will disburse construction funds based on the amount of work that as been completed on your project. If, for example, your construction budget is $100,000 and your project is 10% completed (as indicated by a third-party inspector), you will be eligible for a disbursement of $10,000 for that portion of the project. |
| By having a reimbursement loan, you can ensure your disbursed funds are closely aligned to the progress of the construction. | |||
| It is important to know that your Construction-to-Permanent loan is a reimbursement loan. |
