Often, getting approved for a construction loan can be tricky. In many cases, two loans are required--one for construction and one for permanent financing. Usually you will have to pay closing costs on both loans, not to mention the extra paperwork, time and hassle involved. But at United Mortgage Company, we offer a single-close Construction-to-Permanent Loan that combines both construction and permanent financing into one loan.
United Mortgage Company's Construction-to-Permanent Loan allows for a construction period of 6 to 12 months. Other options are also available. And when your project is complete, the loan simply converts to a permanent mortgage.
Q.
Besides a CTP Loan, what other costs may be associated with the construction of my home?
A.
In addition to the contract price, it is common for a construction lender to build a contingency reserve into the loan. This is a specified percentage or dollar amount usually required by the lender in case of unforeseen circumstances that could negatively impact the construction of your home. The amount required is usually based on a percentage of the contract price, on-site costs or loan amount.
Additional costs will vary, and may include construction loan closing costs and fees and special insurance requirements. But don't worry; at United Mortgage Company, our Construction-to-Permanent Loan includes on-site costs, off-site costs, closing costs, interest reserve, contingency reserve and lot purchase or value.
Q.
What does the term "cost plus" mean? If I contract for work to be done, doesn't it automatically mean that everything is covered?
A.
Not always. Some contracts are referred to as "cost plus" because they guarantee the price only for the contractor's supervision of the job and may exclude a portion of the costs for materials and labor. Other contractors may cover both labor and materials but include a clause that permits the contractor to charge more if there are material shortage or increases in costs. You will want to clearly define with your contractor what is covered and is not covered.
Q.
When will I have to make loan payments?
A.
At United Mortgage Company, our Construction-to-Permanent Loan program includes an interest reserve, which means that you will not have any payments out of pocket during the construction period. We will incorporate an interest reserve account within the loan amount. Depending on how quickly you use your construction funds, there may be sufficient funds within the construction loan to carry you through the entire construction period. As each construction project is unique, you will need to discuss your options with your Construction Loan Specialist.
Q.
Will the payments on my construction loan include principal and interest?
A.
Not necessarily! You may have interest only payments until the house is completed. Generally speaking, this means that interest is charged only on the amount of funds used. Interest on our Construction-to-Permanent Loan is charged based on the funds used. Payments are interest only during the construction period, converting to principal and interest payments upon completion of the home.
Q.
What will my construction lender need in order to review my loan request?
A.
Remember, you're asking the lender to loan money on your dream. Your lender will need to see that dream as clearly as you do. Therefore, in addition to standard credit documentation, your lender will want, at a minimum, copies of the following documents to start the process:
1.
Final plans and specifications. These are needed in order to obtain an appraisal.
2.
Purchase contract for the lot (or Settlement Statement if you've already purchased it)
3.
Property profile (description of materials)
4.
Line Item Cost Breakdown from the builder
5.
Builder's construction contract
6.
Copy of Builder's license
7.
Builder's statement or application
**Keep in mind that you need to obtain the necessary building permits for your community.
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