If you are considering building a new home, you are probably thinking about getting a construction loan.

What is a construction loan? A construction loan is a short-term loan with funds advanced at different stages of construction to pay for material and labor as the construction of your home progresses.

Construction Loans

• Typically, the construction loan requires a 10% to 20% down payment of hard cost (lot cost plus construction cost).
• Complete your application with a Loan Officer and provide the following documents.
  o Plans (floor plans/blueprints)
  o Contractors sworn statement
  o Specifications (accompanies the blue prints)
  o Contract with Builder (if applicable)
• Closing on a construction loan takes place at a title company where all disbursements are controlled.
• At this time you would be asked to furnish builders risk insurance/hazard insurance with coverage for one year, an updated contractors sworn statement, and all moneys due (down payment and fees) payable by cashiers check.
• Your builder is now ready to request disbursement from the Title Company for finished work.
• The Title Company will call the bank for an inspection of the work. If the inspection is satisfactory you must sign a Pay Out Authorization form for the funds to be disbursed.
• When your home is completed and livable, this is when the Construction Loan is completed. The Title Company will receive the final sworn statement. The Bank will do the final inspection. The Builder will obtain an Occupancy Permit. All waivers from contractors and subcontractors should be submitted to the Title Company for final payout.
• This is typically the time your traditional mortgage is closed. Your traditional mortgage will pay off your current construction balance and the final draw.

back to top