Frequently Asked Questions

BUILDER REQUIRMENTS

  •  Yes, the significant advantage of being an Owner Builder on your project:
  1. Pay Suppliers, Manufactures, and Subcontractor Directly
  2. Avoid Material and Labor Markups

  • Do I have to be a licensed general contractor to qualify for an owner-builder program? 
  1. No, you can hire a licensed project manager to supervise your project.

1. Major trade licenses such as a General A, B, B-2, or C-5 License

2. Projects Managed in the last 12 months

3. A similar Scale of projects managed

4. Subcontractors and Suppliers that would provide a positive review if inquired.

Yes, there are processes in place for pre-started projects. Once we complete the property paperwork, we can apply for the construction loan.

BUILDER REQUIRMENTS

  •  Yes, the significant advantage of being an Owner Builder on your project:
  1. Pay Suppliers, Manufactures, and Subcontractor Directly
  2. Avoid Material and Labor Markups

  • Do I have to be a licensed general contractor to qualify for an owner-builder program? 
  1. No, you can hire a licensed project manager to supervise your project.

1. Major trade licenses such as a General A, B, B-2, or C-5 License

2. Projects Managed in the last 12 months

3. A similar Scale of projects managed

4. Subcontractors and Suppliers that would provide a positive review if inquired.

Yes, there are processes in place for pre-started projects. Once we complete the property paperwork, we can apply for the construction loan.

DRAW & PAYMENT PROCESS

No. The funds go directly to the borrowers checking account which then you may pay the general contractor, subcontractors, and materials from that account directly.

A draw is the method by which funds are taken from the construction budget to pay material suppliers and contractors. As you draw from your construction line-of-credit your loan increases by that amount. You begin making regular monthly payments, principal, interest and any required escrow following the completion of your construction period and after final disbursement had been paid.

Unlike a line-of-credit you would first need to perform the work and then request a reimbursement of funds.

Step 1. Once a draw is requested, draw inspectors visit the worksite to evaluate current progress against what has been reported. They’re looking specifically to validate that all work items and materials included in a draw request are performed and issue a reimbursement in the form of a Draw directly to your checking account.

Step 2. The lender would then collect any lien waivers from General Contractor, Sub-Contractors and material suppliers paid to ensure that no liens have can be placed against the property at a later date.

Yes, with limitations. Items such as Cabinets, windows, modular and kit preorder items with property documentation such as an invoice for the deposit may be considered.

This is a common occurrence with construction projects. Something outside your control or an upgrade you make along the way can cause the overage. Either way, if there are not sufficient funds in the loan to pay for the overage, then you must pay for it with your own cash.

Perhaps building a contingency fund into the loan amount is a better way to handle any overages. Ask your lender to explain their policy on the use of contingency dollars.

Typically, inspections begin upon notification that the foundation is completed and continue throughout construction. With Built, inspections are automatically scheduled after a draw is requested. These inspections are made for the purpose of determining the percentage of completion of the property and that the home is being built in conformance with the plans and specifications submitted.

Each draw requested will be reviewed by the lender along with any required third-party inspections or Lien Releases and the funds will then be wired into your checking account within 2 business days thereafter.

Program types

A Single-Close Construction to Permanent or SC CTP loan is a home mortgage that can be used by the borrower to close both the construction loan and permanent financing of a new home at the same time. They are sometimes referred to as “construction to perm”, “single close”, “one-time close construction loan”, “construction conversion”, “CTP”, or even “all in one” loans.

Traditionally, consumers obtain interim construction financing from a bank or credit union to fund the construction of their new home. Once the home is completed, the consumer then pays the construction loan off with a second loan that is their permanent 30-year financing (take-out), usually from a mortgage company. This process is referred to as a “Two-Time Close”.

A 100% Construction Loan is attained by calculating what is the Loan-to-Future Value in comparison to a Loan-to-Cost calculation used by most lenders. A higher-than-average financing allows you to include all soft and hard costs into your loan, such as mortgage payments, prepaids, closing-cost, contingencies, land loan, and other soft-cost items.

Acquisition, Development and Construction (AD&C) Loan is a loan package which finances acquisition, development and construction of real estate.

AD&C loans are usually taken by developers of large properties.

AD&C loans allows a developer to buy land, install infrastructure and build improvements.

AD&C loans are risky loans, as the value of the collateral depends on the development process adding significant value.

Property types

Off-the-grid is a characteristic of buildings and a lifestyle designed in an independent manner without reliance on one or more public utilities.

The term “off-the-grid” traditionally refers to not being connected to the electrical grid, but can also include other utilities like water, gas, and sewer systems, and can scale from residential homes to small communities. Off-the-grid living allows for buildings and people to be self-sufficient, which is advantageous in isolated locations where normal utilities cannot reach and is attractive to those who want to reduce environmental impact and cost of living.

Generally, an off-grid building must be able to supply energy and potable water for itself, as well as manage food, waste and wastewater.

The accessory dwelling unit, or ADU, is also known as an in-law or mother-in-law unit, secondary dwelling unit, granny flat or carriage house. An ADU has its own kitchen, living area, and a separate entrance. An ADU may be attached to a house or garage, or it can also be built as a stand-alone unit, but it generally will make use of the water and energy connections of the primary house.

A Prefab & Modular homes are built in sections inside a facility and then moved to the home-site to be assembled.

Terms

Total cost of construction including home, land, closing costs, interest, and construction-related items.

Insures against filed and unfilled liens. Obtained when project has started prior to closing.

The Conditions, Covenants, and Restrictions document is created by a developer for a specific subdivision. Each project in the development must adhere to its guidelines.

A document granted by a local government authority indicating the project meets all codes and regulations and is ready to be occupied.

A document that defines any modifications to the original plans, stating the nature of the change, its cost, and any changes to the previous time frame, and serving as a supplement to the original contract.

A building contract that has an estimated cost but allows for the actual expenses related to the completion of the project to be passed onto the homeowner.

A document signed by the contractor, subcontractor, or material supplier that acknowledges payment. Formally releases all rights to file a claim of nonpayment.

Percentage of contract value set aside for unforeseen changes in the scope of the work.

Insurance that covers the project from theft, vandalism, weather, and defects. Usually provided by contractor but may be provided by borrower.

A single installment in the process of disbursement of construction loan funds

An agreed-upon timetable that states loan fund amounts and frequency during construction.

A contract that states a fixed price for the home’s construction. Often includes allowances for specific items such as cabinetry, flooring, fixtures, landscaping, etc.

An inspection performed by the appraiser indicating the project was satisfactorily completed per plans and specifications.

Provided by title company. States that home is located within boundaries of the mortgaged property with no easements or encroachments present.

Provided by a registered land surveyor indicating the location of the structure on the mortgage property.

Costs for labor and materials during construction.

Interest Reserve is a dollar amount added to your loan to make your monthly interest payments during construction. During construction you actually make no monthly payments. At the end of construction, you owe more money because you have borrowed those monthly payments using the loan money. This feature is useful if you are selling your current home while living in your new home during construction.

Document filed in the county records claiming that money is owed for work or materials.

A document usually provided after payment is made that waives the right to file a lien.

A mechanic’s lien is a lien that may be filed against the title to your property by any contractor, subcontractor, or material supplier who has not received full payment for the work or materials provided. If the Lender is made aware of the filing, they may choose not to further disburse on your loan until the lien is released.

A change in loan terms, such as an extension, increase in loan amount, or rate change.

Percolation test performed to determine if soil conditions are acceptable for a septic tank system.

The phase of the loan following the construction phase during which the borrower makes payments according to the terms of the note.

Construction items included in the contract that have been pre-paid by the borrower.

A project in which the homeowner has a contract with a contractor to build a house.

Funds held until the home is complete and the final documents are issued.

Items that are not considered direct construction costs (such as design, engineering, financing, legal, etc.) and other construction-related expenses.

A home built for the sole purpose of being sold for profit.

Homes built on-site using traditional wood frame construction.

Enhancements or updates to the title policy (liens, etc.,) that would prevent the lender from having priority on the title.

Report ordered by the lender (if required) when draw requests are received to ensure that no liens have been placed against the property.

OTHER

No, you have up to 24 months to complete your construction project, so you can apply AND lock in your interest rate up to 12 months before your permit is approved.

Soft costs include land, pre-paid items, permits, architecture and design fees, legal fees, closing costs, construction loan payments, and furniture.

  1. Due to the market fluctuations, the benefit is to lock in the interest rate as soon as you.
  2. The lead time in getting materials can be as long as 12 months. Ordering Materials such as Cabinets, Windows, Appliances, Specialty Trusses, or Millwork to prevent your project from any delays.

A construction loan works like a line of credit. The payments are calculated based on the amount you have drawn from your available limit, multiplied by the interest rate, and divided by 12 months.

Example: $100,000 X 5% /12 = $417 for that month.

If rates drop more than .25%, lower your interest rate to the new market rate saving you tens of thousands in closing costs without having to refinance; this feature is known as a Float Down.

Yes. You will need a set of preliminary plans and designs since a construction loan applies to a future structure, not just a piece of land.

Down payment requirements are determined based on the Completed Value Appraisal.

    1. An appraiser would look at your Plans and Specifications and compare your project against similar comparable sold with a similar size, location, age, design, and amenities.

In most cases, we can finance up to 110% of your construction project, including all your permits, land, pre-paid items, permits, architecture, and design fees, legal fees, closing costs, construction loan payments, and furniture, assuming you have enough equity in the project t payments during construction. At the very least, we would like 20% equity in your project.