Q: Does United Mortgage Company finance projects where construction has already started? A: This is considered “broken priority”. In order for us to consider the loan request, the borrower will need to provide evidence of payment on work performed, appraiser to address any adverse conditions due to construction in progress, and title company willingness to insure project. back to top
Q: How is interest calculated and paid during construction? A: Interest is charged on disbursed balances, not the whole loan amount. Borrowers are billed every month the interest due on their loans. The interest amount due will be automatically charged to the allocated interest reserve account in the borrower's loan budget, or paid directly from the borrower's own funds. back to top
Q: In a situation where borrowers loan amount is greater than remaining costs to build, when does Home Construction Lending disburse these funds? A: This situation creates an “excess equity” position. If the equity is in the lot value, these funds will be held until the end of construction. If this excess equity is in prepaid construction funds, then borrowers will have the ability to draw on those funds during construction. The draw against these funds will be in connection to the percent of completion of the construction project. The excess equity disbursed to borrower at completion is limited to an 80% LTV restriction, and the loan being in good standing. If LTV is greater than 80%, these funds will be used to pay down the principal loan balance, and Home Construction Lending will re-amortize the new loan commitment. back to top
Q: How are disbursements made? A: There are two types of disbursements, off-site and on-site costs. All disbursement requests have to be accompanied by a draw request form. The draw request form is executed by borrowers and contractors, specifying the amount of the draw and the type of draw, off-site or on-site costs. Additionally, all off-site costs draws should be accompanied by a receipt and or cancelled check, reimbursing the borrowers for the expense of that line item. Builder profit and overhead is disbursed with accordance to overall percentage of completion of the construction project. An on-site cost disbursement requires an inspection, and a title endorsement that searches for any liens recorded against the property. Upon receipt of the inspection and title update, funds are wired directly to the borrower bank account. back to top
Q: What is the difference between contractors and lenders contingency? A: Contractor's contingency is funds available to the contractor to cover cost overrun, and are part of the total contract price. At completion of construction, these funds are generally unconditionally available to the contractor by contractual agreement.
Lender's contingency is funds available to the borrower's benefit, to cover any unknown and unplanned conditions that may not be not included in the builder's contract. These funds if not used at completion, are for the borrower's benefit; the contractor is not entitled to any part of these funds. back to top
Q: What are the items needed from a borrower at completion of construction in order to roll into permanent financing? A: Borrowers are required to furnish the following items:
Notice of Completion
Certificate of Occupancy
Affidavit from the general contractor affirming all subcontractors have been paid in full
Letter from borrowers stating that house is complete to their satisfaction
Q: Do events of default occur on a construction loan? A: Events of default do occur on construction loans. The most common event of default on construction financing is a non-monitory event of default. This is a list of some of these events:
Lien or Stop Notice on a construction project
Construction Budget shortfall
Permits have not been issued after 30 days of closing
Q: Once Home Construction Lending has funded a loan and paid the broker a commission, how is this broker involved with the borrower's draw requests from United Mortgage Company? A: Once we funded a loan the broker is no longer involved in the transaction. The loan is considered an United Mortgage asset and Home Construction Lending will manage all contacts with borrowers. We ask our brokers not to get involved in this process. back to top
Q: Where can a broker find construction business? A: A good source of business for brokers is trade magazines, custom homebuilders, architects, and specialty realtors. back to top
Q: If a realtor has a property listed for sale, but is unable to get conventional financing due to a building code violation, how would this loan fit within United Mortgage products? A: This is a Construction-to-Permanent Loan; Home Construction Lending will finance the purchase of property and the cost to cure. back to top
Q: Does Home Construction Lending offer a Construction-to-Permanent Loan product for an owner builder? A: If a borrower is a licensed general contract, or an individual with an extensive building background, Home Construction Lending will entertain this request as long as sweat equity is not used and borrower demonstrates the ability and expertise in building SFR. Occupancy intent has to be clear, as we will not allow speculative financing. back to top
Q: How is a borrower's down payment calculated, and when is that payment made? A: A borrower's down payment is the difference between the total construction costs (including land, closing costs and reserves) and the amount of the loan. Borrowers will receive credit for any prepaid expenses or equity in the land; all those prepaid items have to be documented by paid receipts and or cancelled checks. The balance of the funds to complete the construction are due at the loan closing, just as it would if borrowers where purchasing an existing home. back to top
Q: What is a Draw? A: A Draw is a request to have funds disbursed from your construction loan. Your disbursements are intended to cover specific expenses incurred during your home's construction, as itemized in the Cost Breakdown section of your Construction Loan Agreement. Construction expenses fall under two basic categories: direct and indirect costs. This distinction is important to keep in mind as disbursement procedures differ for direct and indirect costs. A Draw Request Form is exhibit "D" of your Construction Loan Agreement. back to top
Q: What are "on-site" and "Off-Site" costs? A: "on-site" are costs associated with the labor and materials used for your home's improvements. Also known as "board and nails" or "Direct Site cost improvements," direct costs typically include items such as lumber, appliances and plumbing -things used in the actual construction of your home. The direct costs will be disbursed based upon the percentage of completion as determined by the inspector.
"Off-Site", also called "indirect," are costs not directly related to labor or materials for the actual construction of your home. For example, building permits and architectural fees are off site itemized in the Cost Breakdown section of your Construction Loan Agreement. Builder Overhead/Supervision are disbursed in proportion to the percentage of completion of the home. back to top
Q: How will I know if my Draw Request has been approved? A: When we receive your Draw Request in our Disbursement Unit, we will order an inspection to verify the status of construction on your home. The inspection is performed within three to five business days from the time we receive your Draw Request. When the inspector verifies the percentage of completion and we receive verification from the title company that your property is free of mechanic's liens, your Draw Request will be funded. This process may take up to 10 business days. A Disbursement Loan Administrator will call you to discuss the inspection results, the amount of the Draw Request, and the date you can expect funds to be wired to your account. We advise that you verify your bank's receipt of funds prior to issuing checks. Please note that your funds may not be available until the next business day. back to top
Q: Can you tell me more about the "Contingency Account"? A: A Contingency Account is money set aside for unforeseen circumstances or cost overruns that may occur during the construction or improvement of a home. Disbursement of these funds is on an "as needed" basis and will generally be in proportion to the completion of the home. Of course, as with other costs, a Draw Request is required for disbursement of these funds. In addition, evidence of the overrun in the form of receipts, paid invoices or canceled checks will also be required. back to top
Q: How are On-Site and Off- Site Costs disbursed on my loan? A: On-Site are disbursed as improvements are completed based on a percentage of completion. Off-Site are disbursed with invoices, receipts, canceled checks or other evidence of payment attached to your Draw Request. back to top
Q: How do I request my first draw? A: For your first On-Site draw, you must include a copy of the building permit in the package you deliver to our Disbursement Unit. (The building permit is required only on your first On-Site Cost draw.) First Draw – On-Site (Direct) Costs:
A copy of the building permit
A completed Draw Request form
For Off-Site Cost draws, you will need to submit the following:
Off-Site (Indirect) Cost Draws:
A completed Draw Request form
Copies of applicable invoices, receipts or canceled checks
Q: How long does it take to receive a disbursement? A: Your disbursement will be released after United Mortgage has received an inspection performed by our local inspector and an update from the Title Company indicating the title to the property is free and clear of any Liens. Your Disbursement Administrator will review the inspection and Title and disburse your request up to the project completion percentage. This process may take up to 10 business days. back to top
Q: I heard that some improvements require deposits. Is that true? A: Yes, some vendors for items such as cabinets, windows, or any specialty improvement that requires custom craftsmanship requires deposits. The amount of the deposit is typically 50% of the total cost of the improvement and paid directly to the vendor. The remaining 50% of the improvement is paid after installation. back to top
Q: When do I get reimbursed for these deposits? A: Requests for deposit reimbursements are usually made along with your normal Draw Requests. You should submit evidence of your payment of the deposit amount for reimbursement. back to top
Q: What account will my loan funds be wired to? A: At your loan closing, you signed a Construction Disbursement Account Information form that describes the account you opened for the purpose of receiving wired funds. Should there be a change in your account information, please notify us immediately in writing. back to top
Q: When should I inform you if there are changes on the project? A: Immediately! Keeping us informed of any changes allows us to anticipate any unusual requests that may include a change to the budget or to plans. For example, a retaining wall that was not required at the time of the original county or city approval may later become a requirement. When you inform us, we will in turn alert the inspector that there are changes to the improvements. This will prevent any potential discrepancies in the inspection report. Again, all changes are subject to lender approval. back to top
Q: What happens once I've reached my final Draw Request? A: By the time you make your final Draw Request, your home should be complete. You can then request your remaining loan funds, and "roll" your loan into the permanent loan phase, provided that the conditions outlined in Exhibit "C" to your Construction Loan Agreement are met.
When requesting your final Draw, the following items must be submitted:
If you're an Owner/Builder:
Final Draw Request (Exhibit "D")
Affidavit from you stating all material providers and subcontractors have been paid in full
Copy of recorded Notice of Completion (if applicable) or a Certificate of Occupancy
Evidence of current homeowner's insurance
Final Progress Inspection
Your mailing address and e-mail address for future correspondence
If your home was built using a general contractor:
Final Draw Request (Exhibit "D")
Affidavit from general contractor stating all material providers and subcontractors have been paid in full
Unconditional Lien Waiver Upon Final Payment signed by general contractor
Copy of recorded Notice of Completion (if applicable) or a Certificate of Occupancy
Evidence of current homeowner's insurance
Final Progress Inspection
Your mailing address and e-mail address for future correspondence
In addition, your loan must be in good standing according to the terms of your Construction Loan Agreement. Once your final Draw Request has been funded, your construction loan will be rolled into a permanent loan. back to top
Q: Does this mean I have to sign new loan documents? A: Absolutely not! That's the beauty of our Construction-to-Permanent Loan. Your loan documents were created specifically to cover both the construction and permanent phases of your loan. So you can rest assured that you have permanent financing when your home is completed. back to top
Q: How do I roll my loan over to the permanent phase? A: When you make your final Draw Request, your Disbursement Administrator will prepare your loan file for processing and re-pricing by the "Roll to Permanent" Administrator. Loans are rolled to the permanent phase effective the first of each month. Your loan would then be eligible to "roll" from the construction phase to the permanent phase. Our Roll-to-Perm Department will contact you and inform you when your loan will convert into the permanent loan. back to top
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