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Construction Loans

What is a Construction Package Loan?

A Construction Package Loan is two loans in one. Unlike buying an existing home, financing the building of a new home includes a construction phase, the period of time your new home is being built. Once construction is complete, a permanent mortgage is needed. The Construction Package Loan includes the lot purchase, construction phase and the permanent mortgage.

What is “one-time close” and how does it save time and money?

One-time close means with one construction loan application, one loan qualification and one loan closing, you get all the financing you need—a construction loan to build your home and a permanent mortgage when construction is complete. Best of all, you only pay one set of closing costs. And there are only interest payments during the construction phase.

What do you mean by “no-payment” Construction Package Loan?

As part of your Construction Package Loan budget, we recommend that you establish an account to pay the estimated interest costs during the construction of your home. This way you make no monthly payments during construction unless your interest reserve account is depleted before completion of your project. We like to think of it as a worry-free mortgage!

How does the construction loan process work?

A Construction Package loan is similar to a standard home purchase loan or refinance loan, but, unlike a purchase transaction for an existing home, a Construction Package Loan involves determining the value of land and a building that is not yet constructed. In determining the future value of your new home, we request information on the land and planned improvements and construction costs, this is typically furnished by an approved appraiser.

Once I get started how do I access my funds?

Unlike a standard purchase mortgage, a Construction Loan is disbursed in the form of payments (or "draws") as each phase of construction is completed. Before any payments are made to your contractor, you must have an inspection report submitted by the government inspector verifying the completeness of the stage in question.  Moreover, an appraiser must also confirm that each stage of construction is satisfactorily completed before any funds are disbursed.  Finally, you as the borrower and home owner must sign the lender's release form authorizing them to pay your contractor for the completed stage.

Construction loans typically require interest-only payments during construction and become due upon completion. Completion for homeowners means that the house has its certificate of occupancy. You, the contractor and the lender establish a draw schedule based on stages of construction, and interest is charged on the amount of money disbursed to date.
Another variable in construction loans is how much of the project cost the lender is willing to lend. If you already own the land, then that can be considered as equity an construction loan. 

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