To be approved for a construction loan, not only will you have to go through the typical process of proving your creditworthiness and ability to repay the loan, you’ll also have to show the lender detailed plans for the project, including cost estimates. The lender may also need to approve of the company that’s building your home.
You won’t be approved for a construction loan until you have all these details sorted out.
Once you’ve got your plan and your loan approval, and you’re preparing to break ground, your builder will receive the first disbursement of the funds.
With construction loans, the money isn’t given to you all at once. Instead, the builder receives a series of disbursements called “draws.” Whenever your builder requests a new draw for the next stage of work, an inspector will come to the site and check out the progress on behalf of the lender.
Before you break ground, be sure both you and your builder understand the lender’s draw schedule, including when and how disbursements are made.
On a conforming loan amount (<= $510,400) , as little as 5% is required. On a jumbo loan, as little as 10% down is required. *Example: You could have a total project cost of roughly $537,000 including land payoff and only put 5% down!
Anywhere between 1-3! Choice A: Buy lot, do Construction Loan, refinance with permanent loan = 3 closings. Choice B: Buy lot, do One-Time Close Loan = 2 closings. Choice C: Close on lot and One-Time Construction Loan at same time = 1 closing.
It’s kind of tricky, but it can be done! Easiest: Buy lot from the builder or developer that is building your home. Harder: Have your builder picked out ahead of time. Design your home and complete the plans, specs and most of the budget (except for the site costs). Seller of lot must agree to a slightly longer than normal closing time (45-60 days) so that you can get final bids for site costs finalized before everything goes to the lender. Hardest: Find seller of lot that is willing to have a very extended closing time-frame (up to 120 days) so that you have time to find builder, do home design, plans, specs etc. and for lender to go through their process.
Typically, a 12 month construction period is allotted. You just have to let the lender know up-front what is expected. If you run into a snag, we will give you up to an additional 6 month increase in time.
Yes. The payments are interest only based on what is drawn.
YES!! In some cases, your land equity can cover your entire down payment and closing costs.
Your down payment is due when you close on your loan.
Yes! We will have the prospective builder fill out a questionnaire and then will check references and run business reports on them if we have not previously worked with them. We do this for both your protection and ours.
No! You cannot be the builder of record for your own home. You will have to find a different builder of record. The borrower cannot be the same person as the one who also signs the mechanics lien. If you are a builder and would like to build your own home, First United Bank (not the mortgage company) may be able to finance this for you. The bank also does spec lending…so just inquire!
Typically, draws are about once a month, but we will allow up to two. Borrowers and the builder have to sign off on each draw before it can be processed. Once a signed draw request is received, we will send an inspector out there to make sure the work is completed. Upon satisfactory receipt of the inspection, we will fund the draw request. This process takes approximately 3 days.
You can absolutely make a principal reduction when the loan goes to a permanent loan and it will lower the end payment. Also, whatever money you don’t use during construction will go as a principal reduction on the end loan
YES! You can do these loans on a home you already own or for a home that needs major rehab that you would like to purchase.
Approximate Timeframes for Closings
(These are subject to change based on individual loans)
Purchases – Approximately 30 days
Construction – Approximately 45 days
Refinance – Up to 120 days