Residential Construction Loan Process

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Information about Residential Construction Loan Process

Published on June 2, 2008

Author: learn2000


Slide 1: Building a New Home Slide 2: While this presentation attempts to be as accurate as possible, your construction loan process may vary somewhat from what is presented here. The variation might be the result of timing, differences in construction methods in different parts of the country, environmental conditions or builder practices. This is meant to depict the process in a general sense and is not meant to be an exact portrayal of the actual process. Disclaimer Slide 3: Advantages of New Constructioncompared to buying an existing home You will get to decide on many of the design features including colors, flooring and cabinetry. New construction will conform to the latest building codes, especially important during hurricane season. Builders typically warrant their homes for period of time. The new appliances that come with your home usually are covered by manufacturer’s warranties. more advantages of New Constructioncompared to buying an existing home : Your new house will be the latest style, incorporating current trends in construction such as great rooms. Your new house will be designed to be energy efficient. Your new house will be wired for cable TV and the Internet. You can select the outlet locations. more advantages of New Constructioncompared to buying an existing home Check out several builders Contact your local builders association for a list of members. Visit the National Association of Homebuilders website for a list of local associations : Check out several builders Contact your local builders association for a list of members. Visit the National Association of Homebuilders website for a list of local associations / Selecting a Builder cont.Look in special sections of the newspaper : Selecting a Builder cont.Look in special sections of the newspaper Parade of Homes New Construction Guides Sections featuring builders Developments Check out the Builder : Check out the Builder How long has the builder been in business? Does the builder hold the necessary licenses? Where can you look at house completed by the builder? Check your builder’s references : Check your builder’s references Homebuilder’ Association membership Is the builder acceptable to your lender Better Business Bureau Ask customers of the builder about Quality of finished product? Overall satisfaction? Responsiveness? Meet with the builder : Meet with the builder Does the builder or superintendent communicate effectively? Do you feel comfortable with the answers to your questions? Visit a construction site and Look at the quality of work. Remember, the devil is in the detail. Financing Your New House with a Construction/Perm Loan : Financing Your New House with a Construction/Perm Loan Many builders finance houses with construction/perm loans taken out in the customer’s name. This allows the builder to hold costs down and enables the customer to pay only one set of closing costs since the construction loan becomes the permanent loan. Your lender will work closely with you and the builder to assure the process works smoothly. The Construction Loan Closing : The Construction Loan Closing You will close your loan at a title or escrow company selected by the builder. The closing will include the purchase of the land if you do not already own your land. The Construction Loan Closing Cont. : The Construction Loan Closing Cont. You will sign the same loan documents as you do for any mortgage. In addition, you and your builder will sign a construction loan agreement that spells out everyone’s obligations during the construction period. The lender will place the proceeds of your loan in a construction loan fund to be paid out as the house is completed. Your builder may receive upfront funds to pay for permits and land preparation. (Usually about 10% of the loan amount.) Interest payments during construction : Interest payments during construction During construction you will be billed for interest on the amount of funds the bank has disbursed. Interest is billed on the first of each month for the proceeding month. Each subsequent month throughout the construction process you will be billed for the interest for the previous month. The amount of interest will change from month to month as your loan balance increases. Disbursements will not be made from the construction loan fund if the interest payments are delinquent. Permitting Process : Permitting Process Before the start of construction the builder will get a building permit from the municipality where the house is to be built. The plans and specifications for the house will be reviewed by plan reviewers who will check for conformance with state, county and local building codes. When approved, the builder will be issued a building permit which must be posted on the property. Government Agency Inspection Process : Government Agency Inspection Process During construction, your house will be inspected as the work progresses. These inspections are done by the municipality where your house is being built. The inspections are to insure that work is being completed according to the municipality's building code requirements. These building codes will include State, Regional, County and City regulations. Inspection Process cont. : Inspection Process cont. Inspections will be made of the foundations, plumbing electrical, concrete, framing, insulation, drywall, sewer or septic and air conditioning. The municipality will send an inspector sometime after the builder requests an inspection. Permits : Permits Your builder will obtain building permits and pay impact fees. The amount of time this will take varies with governmental agencies. Many times it is the permitting and inspection process that holds up the timely completion of your home. Construction Begins : Construction Begins The property will be prepared for construction by filling the land to the proper grade. This insures your property will be above the grade and rainwater will run away from the house. Construction Begins cont. : Construction Begins cont. The building pad will be sprayed for termite protection. The footers that will support the walls will be set up and the concrete poured. Next will come the rough plumbing. The rebar that gives the foundation strength will be laid down. The concrete will then be poured and the footprint of the house will be apparent. The first draw : The first draw When the builder has completed the initial phase of the house construction he/she will ask your bank for money to pay for the work completed. Typically this will include the lot preparation, rough plumbing and electric, foundation and walls up to the tie beam. In addition, the builder will be asked to provide your lender with a copy of the site survey to assure that the house has been placed on the lot correctly. Raise high the roof beams : Raise high the roof beams Once the walls are up it will be time for the roof trusses. The trusses will be strapped to the tie beam to assure the roof stays in place. Trusses are usually assembled at a truss company and delivered to the site for placement. The Second Draw : The Second Draw Once the roof is covered, the wall studs are up, the air conditioning ducts installed and the electrical wiring roughed in, the builder will be ready for a second draw. The Third Draw : The Third Draw The next part of construction will see the windows installed, the roof finished, drywall installed and finished, tile work and interior doors installed. The outside will be receive a coat of stucco . When this work is finished your builder will ask for the third draw. The Fourth Draw : The Fourth Draw Now the house is really beginning to take shape. Kitchen and bathroom cabinets are installed. The interior and exterior are painted. The garage door is installed. The Final Draw : The Final Draw Mirrors and closet doors will be installed Appliances will be put in. Walks and driveways will be completed Landscaping and sod will be planted. Window screens installed Air conditioning will be completed and tested The house will receive a final Cleaning The house will now be ready for your approval. Final Draw : Final Draw As part of the final draw to the builder, you will endorse the final draw check or sign the final disbursement affidavit. Punch List : Punch List Upon completion of your home, most builders will walk through the house with you and note any problems that you point out. This is called a “punch list” and the builder will then discuss with you the best way to correct the problems. punch list n. a to-do list (of items requiring immediate attention); any list of significance. Punch List cont. : Punch List cont. Some problems can be fixed immediately and some may take longer. Make sure you get a copy of the list and discuss the dates for completion of the work with the builder. Construction Loan Documents : Construction Loan Documents Construction Loan Agreement Notice of Disbursement Options Draw Schedule Florida Lien Law Congratulations on your new home! : Congratulations on your new home! For more detailed information visit

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