New Construction Home Loans A TO Z Guide

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A Conceptual Schedule For Draws:

• Upon closing you will be given funds for the purchase of the plot if it has not yet been acquired. Additional funds will be provided at this time for you to prepare the plot. This may entail clearing the land, installing a septic system or piping to the local municipal sewer system, main power and telephone lines, etc. This will amount to approximately fifteen percent of the loan amount.
• The second phase of construction usually includes the foundation and slab, rough framework for the first floor if it is a multi-storied dwelling, and sheathing the structure. This should account for an additional ten percent funding.
• It will now be the time for roughing-out the remainder of the home, truss and sheath the roof, lay down the floor decking and enclose the final areas. Work will also be completed to rough-out the plumbing, HVAC, electrical and telephone, and any other utilities or systems you may have planned for (Cable TV, Internet, centralized vacuum, etc). Upon inspection of the additional work, and a further appraisal and inspection, an additional twenty percent of the funding will be disbursed, which means that you have now financed a total of forty-five percent of your construction.
• Your new home is really starting to look like your dream come true now. The rough interior work, sheet-rock or paneling, doors and windows, ceramic tile in the bathrooms (if required), cladding and exterior painting should now be completed. Another appraisal and you will receive an additional twenty percent.
• The contractors will now do all the trim and finish work, kitchen and bathroom cabinets, built in closets and cabinets, interior wall coverings and paint and the final plumbing, electrical, HVAC, etc. Twenty percent more.
• One more inspection, fifteen percent more funding, and your home has been completed. Replete with appliances, drapery, possibly a deck or walkways and landscaping, you are now ready to call the inspectors and appraisers and get all your final documentation and that coveted CO (Certificate of Occupancy) and the final fifteen percent of your construction mortgage money.

According to how the funding was agreed upon, disbursements are made directly to you or the contractors, or made to all parties jointly.

Your interest only payments are made on a monthly basis and are based upon interest only relative to the outstanding balance. Most often then not, these payments will be expected at the beginning of each month.

Once the house receives its CO, and you are ready to move in, the mortgage will then convert from the construction phase payment schedule to the modified or permanent mortgage phase.

Note: In some cases, just before you convert to the permanent mortgage, a further requirement of the lender may be to have your insurance also updated and converted to a traditional type policy.

A Few Points About Your Permits And Approvals Before Construction.

Be certain that your home conforms to all building and zoning laws and regulations. Have certified engineers and architects do the planning and the work. Hire only certified and licensed contractors, if required, and make certain that you conform to all local and state codes for construction and safety. If these things are not considered and addressed before construction, you may be slapped with fines and legal actions, and forced to alter or replace work that has already been completed and paid for. All of this is timely and expensive, and if you do not meet your construction deadlines your loan term will run out, and you will suffer costly penalties.

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